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Demand & Supply Chain Management Evolution

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Language: English

Making Sure Lean Stocks Are Properly Nourished


Company: A.T. Kearney

It's time for a new view on lean inventory, one that is sustainable and healthy—not size zero, but rather size "right."

Lean has put inventories on extreme diets. While many supply chains have benefited from reduced flab, in others lean has gone too far. Like supermodels pursuing a false ideal of perfection, some companies have sought the unrealistic: minimal or even zero inventory.

The concept of lean inventory took off in the automotive industry, where stable manufacturing capacity facilitates the use of techniques such as just-in-time from the inbound supply chain to the assembly line. And what's not to like about lean? After all, inventory is one of the seven sources of waste, and, as everyone knows, waste is bad. Right? But tell that to the car manufacturer that had to charter private jets to get material on time from one of its tier one suppliers. Further, from an end-to-end perspective, automotive supply chains are often far from lean with large stocks of finished cars as a result of the disconnect between production volumes and consumer purchases.

Or consider the high-tech sector. One company's contract manufacturer had stretched its make-to-order supply chain so taut that a disruption anywhere led to supply issues, and any planning error had a direct impact on customer service. This was driven by the philosophy that inventory should be reduced to zero.

These all-too-common cases confirm our belief that inventory is not waste per se. Rather, excess inventory is waste. The question, then, is how much inventory is the right inventory?



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