“If you throw a dog with a stick, the dog looks at the stick.
If you throw a tiger with a stick, the tiger looks at you.”
- Chinese proberb -
When working to improve inventories the typical approach is to start by diving into inventory data to identify and implement corrective actions. In numerous projects we’ve conducted in different industries over many decades, we have found that this approach has limited potential, often boiling down to better house cleaning of excess & obsolescence.
Instead, we have learned that viewing inventories as a symptom, or the result of decisions made throughout the company is a much more potent approach. These decisions, that eventually materialize as inventories, include product- and channel strategies, service level target setting and the design of fulfillment model to mention a few. What these decisions have in common is that they are often
- Made without clearly accounting for their impact into the inventories they cause
- Made to pursue other objectives than inventory efficiency, e.g. sales growth
- Made by stakeholders who are not actively involved in inventory management
- Made by a diverse set of stakeholders, whose first common line manager is the CEO
By now it should be clear why starting from inventories easily leads to roadblocks and inability to achieve big improvements.
Understanding in detail these root causes opens the way towards fixing them. We’ve found that some of this fixing is pragmatic, such as:
- Clarifying responsibilities
- Aligning incentives
- Complementing the sets of KPIs used to make decisions.
Often though, we’ve found that this fixing requires more fundamental change management like enhancing the competences of entire branches of organizations and nurturing a culture where trade-offs are balanced more broadly beyond own area.
If these changes would be driven by any one function, they could easily trigger defensive responses in the organization, that could grind the change intiatives to a halt. E.g.
- ‘Not-invented-here’ – mindset
- Risk of losing power over current control points
- The reluctance to make own responsibility area more complex by needing to account for new and far-reaching consequences.
Often, the only way to reach the big potential behind these obstacles is the support and drive from the authority accountable for all the related players, the CEO.
Eero Soralahti, Senior Manager & Operations Lead, joined Capacent in 2018 after working 15+ years in various mangerial supply chain and operational roles for multinational companies. Eero holds extensive experience from change management programs, reforming business models and managing supply chains through difficult times.