Building Up Excess Inventory

From the comments of readers about management roadblocks, dlankford writes:


I have a new manager that wants to build up inventory even though he understands that we should be building JIT. The area we have cleaned out for finished goods is no longer large enough and now they want to put finished goods in several different locations.


            The first question that comes to my mind is, why does the manager want to build up finished goods inventory? (The implication here is that products are being made to stock, not to order, and the goods being built up go beyond whatever orders there are.)

            We don’t have a lot of information here, so I can only speculate that the manager thinks his job is to produce – and the more he produces, the more he is doing his job, and the more it makes the shop floor look productive, which (he believes) makes him look good.

            There are other unknowns here as well. Is the manager building up inventory of products that match whatever sales forecast the company has? Is there much (or any) communication between production and sales?

            It’s hard to know where to begin. It sounds as if there is a lack of a company-wide focus on the customer, and producing what the customer wants. There needs to be inter-departmental sharing of goals and objectives, so that everyone has the same view of how to serve customers.

            Moreover, everyone (especially production) needs to understand the negatives of producing excess inventory, including the fact that unsold goods are a liability, not an asset, and including the recognition that storage is not the most productive use of space.

            A more positive approach might be to persuade the manager that the focus should be not on constantly producing, but on improving production, reducing cycle times, so that the company can respond to customers faster. The ability to do that might help sell more goods that are truly desired by customers.

            Achieving that change in thinking is not easy and takes constant reinforcement. Getting sales involved might help, if they’re concerned about having to sell excess finished goods that customers don’t necessarily want.

            Any suggestions?



Ralph Bernstein said...

12/16/2006 12:41:51 PM
Re: Building Up Excess Inventory
By: systcraig

Is inventory one of the key company measures? Is it one of the manager's goals and objectives? Including a simple measure like "Inventory Turns" and incorporating it into continuous improvment objectives is an excellent way for many companies to eliminate waste. Excess inventory covers up waste, reducing inventory exposes waste and helps prioritize the need for sustainable improvements. Operating at higher turns (lower inventories) while improving other operational measures at the same time requires continuous process improvement and discipline. Two keys to redcuing cost and remaining competitive.

Ralph Bernstein said...

12/18/2006 2:12:37 PM
Re: Building Up Excess Inventory
By: wjhill

You could use the following - 1) show the new manager a copy of the plant layout with multiple sites or storages indicating the number of moves and how they cross and the waste that this creates. 2) As "sysrcraig" states waste does cover up problems - the manager may be concerned with some of the problems of - machine downtime-scrap-rework-poor scheduling- quality problems-long set up times-etc. Show the manager the measurables for these items and ask or recommend which should be worked on first so that a comfort level can be established thus reducing inventory levels.

Every quality problem, equipment malfunction, problems related to human error must be dealt with before implementation of JIT. whill

Ralph Bernstein said...

7/11/2007 12:52:08 PM
Re: Building Up Excess Inventory
By: E Blackwell

Personally, planning and forecasting for products is a field I would NOT choose to pursue! I know I'm a little late in replying...I just came across this article.

If and when your manager realizes he did the wrong thing...he does have several choices.

One is to seek out a liquidator to help rid himself of the excess inventory and problem merchandise he created! A blow to the ego I know, but....live and learn right?

http://qwiksell-liquidator.com buys up to ENTIRE WAREHOUSES of excess inventory and problem merchandise for cash up front.

I'm not sure they could help you out, as they deal in only "ready-to-sell" consumer products, but it's a choice for liquidation purposes.

You should post a follow-up on this...I'm curious as to see what became of this situation. Kind of interesting!

Have a great day,

Eddy Blackwell

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