>This year has shown that inventory-free companies do not escape the >business cycle or disruptions in demand > >Financial Times, 25 September 2001 > >Peter Martin > >There are really only two types of business: those with inventory and >those without. > >In recent years, inventory-heavy businesses have looked with envy on >their lighter-footed rivals. Indeed, they have tried hard to emulate >them, through practices such as just-in-time manufacturing and complete >outsourcing. Academics wax lyrical about the "pull" business model, in >which the customer's order pulls goods through the supply chain, rather >than relying on a manufacturing plan to push goods through the factory. > >Such an approach turns a traditional inventory-based manufacturing >business into something much more like an inventory-free service >supplier. But this year has provided a brutal lesson that both kinds of >business are equally vulnerable. > >The inventory types lost out in the spring when it became clear that for >all their attempts to minimise the impact of inventory on their >business, things could still go disastrously wrong. > >A revealing article by three Booz-Allen & Hamilton consultants* in the >latest issue of Strategy & Business magazine explores how such paragons >of the modern supply chain as Cisco and Compaq ran into sizeable >inventory problems. In fact, Cisco did it twice, once on the upswing - >when it could not get enough components to produce the goods its >customers wanted - and once on the downswing when it ended up with >unwanted outsourcing capacity and far too much inventory.... > >The danger in outsourcing, then, lies not in fumbled execution but in >allowing it to cloud your view of the business's underlying risks. By >pushing the responsibility for manufacturing on to someone else, you do >not free yourself of the burden of watching out for problems ahead and >adjusting capacity commitments accordingly. > >Manufacturing businesses may like to think that all their troubles stem >from the tyranny of the inventory cycle. This year's lesson is twofold: >escaping from it is harder than you think; and it may not do you much >good, anyway. Just ask an airline boss.
at last! it's about time that the "zero inventories mean stability" fallacy died. The basic problem with this view is the "fallacy of composition" (i.e., an individualistic viewpoint): just because a single business doesn't need or have inventories doesn't mean that the economy as a whole doesn't have them. In any event, unwanted inventory accumulation (general overproduction) is a symptom more than a cause of economic problems. BTW, some economists argue that even service-providers _in effect_ have inventories. "Excess supply in a service industry will show up as excess capacity [e.g., unused airplanes] or as 'inventory' of underutilized employees." -- Baily & Friedman, MACROECONOMICS, 2nd ed, p. 66. Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~jdevine
