Automotive Industry

Inventory, The Constant Struggle

Most people who have worked in the Automotive sector for any length of time know that the subject of how to manage inventory is one of constant discussion and debate.  Having too much adds cost and risk and not having enough adds cost and risk. Why is it so hard to get it right?

A major reason it is so difficult to right-size inventory is how improvement is approached by management.  The inventory numbers are delivered to the management team on a predetermined schedule. Where do the numbers come from? To make it somewhat simple, the numbers come from the manufacturing plants that use inventory, from warehouses that hold inventory, and from the supply chain group that moves inventory. 

What does a typical management team do when the numbers are too high? They demand a reduction in the amount of inventory. Of whom is this demand made? The manufacturing plants, warehousing, and supply chain most commonly receive the order to reduce inventory on hand.   

What’s The Problem?

The problem with this approach is that inventory is an outcome. Inventory is a result of many other factors. The people who own the physical inventory are incapable of systematically improving it. And they are the people most often charged with “fixing it.” 

Why is this true of the inventory owners? The next section shows why it is so hard to improve a company’s inventory posture by working on it where it resides.

How Inventory is Affected?

The middle part of the picture is a model of the flow of material and information through a company’s supply chain processes called the Supply Chain Operational Reference Model (SCORM). Along the flow, many functional groups make decisions affecting the flow of products and services to the company’s customers.  One of the results of the interaction between these decisions is inventory in manufacturing plants, warehouses, and in the supply chain.

Right-sizing inventory requires a sophisticated approach to identify the most important drivers and take action to change it. 

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