Why is “lean” missing. “Lean” like the goal to minimize inventories, removal of inventory waste. Why are the 2015 statistics for inventories up in an environment where everyone is told to minimize inventory. Why is the “lean” missing?
Who brought this case to my attention? Some background first: I attended a Chicago Roundtable CSCMP event (Council of Supply Chain Management Professionals) meeting on Thursday November 12, featuring the well respected author, Rosalyn Wilson, who is the lead author for the annual State of Logistics Report. She reported that so far in 2015 inventories are growing, which inversely effects economic growth. Mike Regan, the Chief of Relational Development at Tranzact, and leading supply chain authority asked Ms. Wilson (and I am paraphrasing here) ” In a world where is lean inventory principles are drummed into everybody’s heads, how could inventory grow as greatly as it has?” A deep mystery, I present you the case of the missing “lean”.
Rosalyn Wilson responded and I will add additional comments also.
- Retailers are concerned about the inventory on the shelves but demand suppliers keep inventory at the supplier’s distribution center and adsorb the cost until they, the retailer, are ready for it. So holistically, inventories in the system are going up. They remain hidden somewhat cause retailer does not have the direct cost until delivery. While it does make sense to keep inventories as far back as possible to lower costs in the supply chain process. I can illustrate that by saying engine parts are lower inventory cost than the assembled engine. So why are supplier inventories going up?
- Rosalyn Wilson also talked about supply chain demand software being linear in a non-linear world. Is it reasonable for software to predict a scandal causing Volkswagen would sharply lower demand or predict a terrorist attack in Paris? At the end of the day, software is written by humans and is designed to cover most likely scenarios. People need to be involved in the demand planning no matter what the software does. It is sometimes too easy to let the software do its job, particularly when it is “normal” times it does a far superior job of inventory control. But humans do need to be involved when expected dramatic changes occur.
- I will add there are many firms, maybe a majority who have manual processes for demand many times ia let’s continue to do what we did yesterday (which worked out then). Lean process have made major penetration in many manufacturing processes, but not all by long shot. The smaller the organization, the less likely they can afford sophistication in demand planning. But yes managers need to use their intelligence in manual processes also.
One of the best practices I have seen is for companies to have a pre-assigned committee of managers from various parts of the business, be available for respond when the environment changes and the software can not be counted on for good demand predictions. Their experience particularly working through a number of changed environment will lead the firm to good decisions, and there will be no mystery about how to change when the demand demands it.