Inventories are a symptom

When working to improve inventories the typical approach is to start by diving into inventory data to identify and implement actions. In numerous projects in different industries I’ve found that this approach has a limited potential, often boiling down to better house cleaning of excess & obsolescence.

Instead, viewing inventories as symptom or the result of decisions made throughout the company gives a much more fruitful approach. These decisions, that eventually materialize as inventories, include product- and channel strategies, service level target setting and the design of fulfillment model to mention a few. 

What these decisions have in common is that they are often

i) Made without clearly accounting for their impact into the inventories they cause

ii) Made to pursue other objectives than inventory efficiency, e.g. sales growth

iii) Made by stakeholders who are not actively involved in inventory management

iv) Made by a diverse set of stakeholders, whose first common line manager is the CEO

Root causes can be fixed, but first it’s critical to understand them so that fixing one thing does not break more things elsewhere. Some of this fixing is pragmatic, such as clarifying responsibilities, aligning incentives and complementing the sets of KPIs used to make decisions. 

Often though, this fixing requires more fundamental change management like enhancing the competences of entire branches of organizations and nurturing a culture where trade-offs are balanced more broadly beyond own area.

If these changes were driven by any one function, they could easily trigger defensive responses in the organization e.g.

- ‘Not-invented-here’ – mindset

- Risk of losing power

- Reluctance to make own responsibility area more complex by needing to account for far-reaching consequences 

Often, the only way to reach the potential behind these obstacles is the support and drive from the authority accountable for all the related players, the CEO.