Inventory Management: The New Approach

After researching inventory management more extensively, I came across an article that was based on a Q&A session with senior director, Meeta Kratz, at Grainger, an industrial supply company. Meeta says that she has noticed that more and more manufacturers are switching to “just in time” inventory to reduce extra costs associated with holding excess inventory. She says that this is an important shift because companies are now learning that switching to “just in time” inventory is allowing them to be more efficient with their inventory management systems and taking excess costs out completely out improving their profit.

While I understand the approach that “just in time” inventory helps to reduce costs associated with excess inventory if a company were to have good data to make good forecasts this problem would exist. The problem with “just in time” inventory is the need for a strong supply chain to make sure that you will receive the products just in time but on time. Failure to have strong suppliers will make a company’s customers unhappy due to their shortage or late shipments due to the original suppliers. This problem would be eliminated by taking the time to analyze the previous data and make accurate forecasts for future orders. Relying on “just in time” inventory, while can be effective” is risky if a company’s supply chain is weak and has no experience dealing with this kind of inventory system before.
When asked about the elements of a good inventory management system, Meeta responded, “Customer-centric, Based on actual usage data, Flexible, Supported by Experts.” These key elements simply cannot be achieved effectively with “just in time” inventory. If you want to be customer-centric you must be able to be flexible with your customers needs. Different customers may have different needs. The fact that actual usage data should be used in a good inventory management system shows that forecasting is essential to good inventory management. If you use data appropriately you can make sure you have enough products in stock at any time without extreme costs.

While I understand that some companies, such as Dell, have great success using “just in time” inventory I still believe that switching to this type of inventory puts a company at risk for not being able to supply their customers with the products they need and risk having shortages and losing customers. Looking at element four, “supported by experts,” this proves that if you have experts looking at your data and double checking forecasts then having “just in time” inventory is less effective and riskier than having a regular inventory replenished frequently.

Do you guys think “just in time” inventory is a good system to move to, just to reduce costs? What are the risks associated with it?