Jason over at Spend Matters posted a thought-provoking piece on inventory practices in Cisco’s supply chain. I posted a comment there and thought I’d post it here, too, for your reading pleasure.

The half-truth of inventory management is that moving to a lean inventory reduces cost. That’s not necessarily true.

If the inventory shifts backward in the supply chain, then the cost will either be reflected in your price, or you will end up doing business with financially unsound suppliers who price their products too low. And you don’t have to be in purchasing very long to understand the problems and costs that arise from that!

Lean inventory can end up costing an organization more in the long term. If the inventory is shifted and the organization with the least proficient inventory management practices ends up with a substantial portion of it, efficiencies are lost, and the cost rises.

To effectively make lean inventory result in cost reduction, you must engage in supplier development and share best practices with the supply chain so that inventory is truly reduced in the whole supply chain, not just shifted. The organization that has the most proficient inventory management must take a leadership role in such cases.

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