Inventory Management: Avoiding Europe’s Mistakes
Many factors contributed to the global financial crisis, with barely an unaffected country to be found. This is the price of globalization, which, while having quite an extensive number of positive notes, also interlinks supply chains and economies to the point where a tsunami in the Philippines can easily impact a business in Tacoma. Supply chain management has all but become an art form in the last fifty or so years; now, more than ever before, there is a necessity to predict where the dominos will fall before they ever reach their destination. Globalization has also allowed us to pinpoint the mistakes of others (and, ideally, learn from them), such as in the case of Europe’s inventory management fiasco of the 1980’s, which is still being sorted out today.
The 21st Century Supply Chain recently touched on this chain of events and its implications for forecasting and properly managing inventory. In essence, many of Europe’s farmers were paid to produce beyond demand, leading to a glut of inventory. This artificial demand led to a drastic drop in price as the market was flooded beyond consumer need. Now, in a complete reversal, European farmers are being paid not to produce certain crops in an effort to level out the supply-demand relationship. A warning about careful oversight and the need for intelligent monitoring of the market is rather easily discovered in that short history lesson, but Ms. Tyrrell goes on to make an even better point: “With business building to forecast as opposed to real demand, this is shortening lead-times and enabling responsiveness. All good. But, and it’s a big but, it only works if you closely monitor forecast consumption and adjust your horizon accordingly.”
If you don’t know what you have, you can hardly forecast what you need. Operating blindly (and, let’s face it, operating a warehouse off of paper is pretty close) in an era when so many competitors can instantly pinpoint their inventory down to the last SKU hurts not only your responsiveness, but your ability to maximize inventory and compete in an increasingly global marketplace. It cannot be overstated how game-changing a warehouse management system, RFID, or inventory management software can be for a business that is still operating its warehouses off of clipboards and tribal knowledge.
Unlike those European farmers, no matter how hard a business works to serve the marketplace, no one is going to step forward and pay it to sit still. These days, moving forward requires innovation and the proper tools to meet whatever the marketplace may throw in the way.
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