Inventory levels to a large degree are about trust. Since we tend to not trust what we can’t see, any place where there are blind spots or poor visibility in the supply chain will be places where excess inventory will build up. In a project with a home improvement company a few years ago I sat with one of the buyers for an hour to get familiar with his work. Early in the hour he placed a large order for a replenishment of lumber. Toward the end of the hour he placed the same order for the same quantity with the same vendor. I asked why. He explained that if he didn’t get electronic notification from the vendor that they had received the order then he re-ordered. I asked him if he cancelled the original order. He said no. I asked why he had not cancelled the original order. He said that he wanted to make double sure the vendor received the order. I asked him if he was afraid of having too much inventory. He said no, explaining that the person in his position prior to him had been fired for running out. The lack of visibility, in this case the electronic acknowledgement from the supplier led to excess inventory.
Inventory accuracy is a contributing factor. Suppose you are a buyer for a retailer and you get to keep your job if the stores in your area do not run out of stock. However, the warehouse for your region has an inventory accuracy of 60%, as the case in a recent engagement. How much extra inventory will you procure? At least 40%, but potentially more. If the accuracy is that poor, then it would be difficult to trust any number published by that DC.
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