This week, we’re reviewing a white paper entitled “Inventory Rationalization and Right-Sizing Strategies” from Kinaxis.

As soon as I saw the title of this white paper, I was immediately interested in reading it.

Why?

Because there’s so much talk about inventory reduction, few people realize that sometimes the right strategy is to increase inventory of a particular item.

This white paper gets right to this point in the first paragraph, saying, “The impact of inventory on cash flow can be devastating, resulting in everything from payable extensions to missed payrolls and loan defaults. Still, despite the lean six sigma purists who preach that inventory represents waste, inventory does play an important strategic role in buffering against demand variations and potentially harmful supply disruptions.”

Amen.

The white paper goes on to cite research that quantifies “the potential profit loss due to supply disruptions lasting 10 days and the potential mitigation that safety stock can yield.”

A rare concept in inventory management is how inventory strategies link to the company’s strategic positioning in the marketplace. In this regard, one point is that in markets that are highly competitive and where availability is a top consumer consideration in selecting a supplier, maintaining inventory is more important than in markets where the company has a stronger competitive position, and consumers don’t expect instant gratification. The white paper also explains how an inventory strategy should vary based on the stage of the lifecycle that the product is in.

The white paper closes by indicating that:

• Lead time reduction will naturally result in inventory reduction, so focusing on lead time reduction should be a first step.
• Companies shouldn’t blindly aspire to cut inventory as much as possible just in the quest to be “lean.”
• Technology tools related to planning, monitoring, and responding to supply chain dynamics can be beneficial.

All in all, this was a well-written white paper that is consistent with some of my less-mainstream philosophies about establishing inventory strategies. I recommend downloading your own copy at Kinaxis’ Website (registration required).

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Recommended Reading

• Impact of Inventory
• Inventory Purchasing
• Profitable Inventory Management and Control
• Inventory Turnover Ratio
• Purchasing and Inventory Management
• Myth: Learning Inventory Management Is Painful

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