Of Course Inventories are Swelling in Long, Slow Supply Chains

Firms Race To Regain Control Over Inventories - WSJ.com

With the dramatically slowing global economy, it’s no surprise that
companies and supply chains are getting socked with excess
inventories right now.

The WSJ discussion very quickly turned to software:

The economic downturn is hitting companies so hard and
so fast that even those that have made huge strides implementing
inventory-control systems
haven’t been able to react quickly enough to avoid a costly
buildup.

Inventory “control” systems are only as good as the data that’s fed
into them. I recently read
a great blog post where Toyota commented:

The person asked what kind of computerized inventory
system they had at NUMMI. The leader of the tour at the time
– a materials management person – responded, “we
don’t have one; the Japanese
say that computerized inventory systems
lie.”

It’s too bad that companies didn’t try SHORTER, more RESPONSIVE
supply chains. You say you couldn’t have forecast this
recession/crisis or whatever we call it? When there’s lots of
inventory on a boat, it’s too late to revise the forecast
downward.

From the WSJ, again:

“The system went from
full speed ahead to stop,” said Ronald DeFeo, chief
executive of Westport, Conn., mining and construction equipment
maker Terex Corp. “We’re working like crazy to stop our suppliers
at the door and send them away — and they’re doing the same thing.
So it’s reverberating back through the system.”

Oh and I’m sure it’s reverberating. This is classic “Beer Game” behavior. It’s
going to ripple HARD on the 2nd and 3rd tier suppliers.

How has this burned companies who rushed to move production to
Asia?

Another factor making inventory management more difficult has
been growing globalization. Red Wing Shoe Company Inc. in Red Wing,
Minn., produces in three U.S. plants, but also outsources some
lower-priced lines to Asian factories. Chief Executive David Murphy
said he has been able to quickly curb production at his U.S. plants
as demand slowed, but his inventories of imported shoes have
swelled, in part because those
orders were placed far in advance of the downturn.

“We’ve had customers who placed orders with us, and we purchased
shoes based on that, but then those customers canceled orders,” he
said. “Some of it was our own internal sloppiness, but we’re also
dealing with long lead
times.”

Um,
those long lead times were their own choices. So Red Wing Shoes and
their CEO is using nice passive aggressive language to blame these
blasted long lead times… um, isn’t he in charge of the people who
made that decision? We need more leaders to say “I
screwed up” like President Obama has taken to doing. Mr.
Murphy… you screwed up. Take responsibility, please. Ok, at least
he took responsibility for the “internal sloppiness.” But what
lessons does he learn from being able to quickly dial back the
local U.S. production?

Without mentioning Lean or Toyota, the article does mention that
some companies are using the method (via the well-known TBM Consulting):

Some companies are using outside consultants to help slash
inventories. Carlisle Companies Inc., a Charlotte, N.C.,
conglomerate that makes everything from lawnmower tires to
commercial roofing, began working with TBM Consulting Group two
years ago to streamline its operations, including its inventory
systems. The company’s goal is to slash $100 million in inventory
by the end of this year.

“Twenty or 30 years ago, the idea was
to keep our factories running, absorbing overhead, even though
inventory was going on shelves,” said David Roberts, Carlisle’s
chief executive. “But we’re looking at it differently today.”

That sounds like good Lean thinking combined with “lean accounting.” Maybe
this downturn will encourage more companies to really adopt Lean
and “Just In Time” methods. It’s hard to do “JIT” when your
products or components are on the proverbial slow boat FROM China.
Companies and CEOs need to wake up.