inventory levels as the economy slows

[morpheus]

if we are fluching out the supply chain to reduce inventory and free up cash... well isn't the fast-moving stuff going to run low first leaving us with a lot of slow movers? won't that stuff up our stock turns and so our KPIs will get worse?

[petert]

yes, but i need the cash. Cash is king, and i need to find it from where ever i can. not spending money with suppliers helps us short term.
the problem is if there is a turn around, suppliers will not be able to keep up, and there will be delays and then there will be stock outs. i just hope that i can work around that issue.

[Alex Rossi]

i think the key here is underlying product information on a per sku level.

basically you need to know the supply to shelf timeline in order to keep inventory lean and reduce stock outs / back orders - EOQ's have a real part to play in this as our geographic isolation means that in some cases EOQ's are high and so someone has to wear the risk of the remaindered inventory.

my thinking is that NZ companies are ordering less but more frequently to mitigate this risk and wearing the possible higher per peice transportation costs.

[petert]

Alex, yes that is true, and the exact opposite is also occuring where bulk purchases are being made from overseas low cost countries, to lower unit costs, only to find that it takes longer to do "change outs", LC's need to be opened, high risk in the transport system, containers being lost, containers not being loaded, and so on.
the outcome of that is unreliability + high stock levels and possible stockouts. it is the stock outs that cause the massive damage to customers.

[Alex Rossi]

i agree sompletely in the sense that there are huge on costs to any unplanned stock out, besides the negative impact to the customer and their reaction.

do you know of any studies that shed light on the likely cost impacts of stock out due to ineffective inventory control?

in terms of low cost options, i am big beleiver in you get what you pay for and if there are savings in one area, there could well be cost increases in other areas. i think it wiser to work even mmore closesly with valued vendors in these economic times, as once the economic tide turns a soured relationship will be remembered.

[petert]

behaviour that is predicated on "save unit costs", especially in manufacturing, causes massive damage. the lost contribution margin dollar vs the unit cost saved, is way out of proportion to the risk of supply chain management.

to minimise the risk, high inventory is held, but change outs are slow, so we become slow and inflexible
to minimise costs, hold low inventory, but the risk of stockouts bite, so we are trapped....

or are we?? can we have both high and low inventory at the same time?
or can we behave differently to create the effect of much less inventory and NO stockouts???