Beware the Inventory Vampires
by Dana Head, The Distribution Team
Inventory is like a living, breathing thing. It is born, grows up, matures, sells hard for a good while, then starts to taper off and, eventually, dies. In some cases it even looms around in an almost dead state. During the inventory life cycle, there should be caretakers like hospital nurses or, in some cases, hospice care workers. If not, your company’s inventory will sit there like a vampire and suck every last penny of extra capital from your bottom line.
In most cases, finding the right people to care for the inventory is not difficult. Usually, the right people are already there, they just do not know their value or understand inventory. Even worse, most of those people do not have managers who truly understand their personal value and how that may affect inventory and the company bottom line.
A good example of this is a situation that happened to me one day as a purchasing agent. I received a disturbing phone call from the warehouse. The warehouse personnel told me she had received my request to use inventory for a specific job but she did not want to let me use the parts. Through the entire history of the company, inventory had never been held or used for anything more than a “per job” type situation. What I mean by that is, inventory was purchased for job A, B and C for example. This inventory then was consumed within a few months and “inventory” was gone and replaced with job D, E and F. In a perfect world, the inventory disappears from the bottom line and capital remains to purchase for jobs G, H and I.
Unfortunately, this is not a perfect world, and customers don’t always decide to complete job B, and move on job D. Perhaps there will be a complete redesign and some of the parts ordered will work as purchased. Worse, there may be a cancelation and none of the parts will be used, ever. For years, this company just sat on these unused orphaned parts. Over time they became like invisible vampires on the warehouse floor. Every so often, the warehouse was expanded in physical size, creating more room for motors, gaskets, fasteners and more to accumulate from floor to ceiling, end to end covered in new and old inventory here, there and everywhere. Many a manager and employee had become blind to the inventory that had now expired and become money sucking vampires.
Buyers kept buying, blissfully unaware of the inventory that lurked in every corner of this massive building. One day, the purchasing manager went out to the warehouse and was astounded by the amount of inventory covered in years of dust and debris. So just like shining a light on a vampire, she pulled open the doors and immediately ran to upper management to announce that she had found money the company could capitalize on. But vampires are persistent, so they lingered in the shadows a while longer with the help of warehouse workers.
Even as old inventory vampires were exposed to the light, they were not being extinguished. The warehouse personnel loved those vampires. Like a security blanket a child cannot give up, the employees fought to keep the inventory. Their reasoning for their behavior was revealed in questions such as, why would the company increase the size of the warehouse if the inventory wasn’t important? Or they'd make statements about the inventory being company assets and we need assets to keep our jobs. If the economy turns, we can resell these items.
When I started working at the company, being passionate about inventory control, I chose not to believe the gossip and lore. Immediately upon my hiring, I decided to make fighting inventory vampires my own personal fight. Every day was an uphill battle. Like a determined young soldier, I pressed on to slay each and every one of those capital suckers, to no avail. The vampires had too many allies. I was unable to slay them myself, and no one in power seemed to possess the knowledge or influence to affect change. This meant the vampires went back to doing what they did best: suck any potential net profit straight off the top line. They did this by staying invisible to the buyers, who would repurchase and restock when that was not necessary. New parts would come and go or sit on the shelf with matching old parts.
As time passed, with pushing and shoving and massaging, the purchasing department eventually received a spreadsheet of items/vampires that were available for per job purchases. This went well for a while. However, no one maintained counts or spreadsheets or tracked what was still viable for use. So, every so often, deadlines would come and go and parts were not actually available. Even worse, no one recognized shortages until the parts were needed. This caused panic and extreme high prices for overnight and custom solutions. The vampires were laughing all the while, protected and hidden in the dust filled shelves.
The real issue was that security blanket mentality. No one in the warehouse wanted to see the vampires die. If a buyer called to use an old piece of inventory/vampire the warehouse employee would ask, why? Or, the answer to the request was simply no. This deep fear is based in a total lack of inventory understanding. No one realized that with a good MRP system (which they did not have – hence the spreadsheet) running out of inventory or stock could be a thing of the past. Eventually, buyers went back to not using old stock and warehouse employees continued to love the vampires, new and old alike.
There is a solution: education and empowerment of the employees. If stock is not being cared for and led through a healthy life cycle by employees who love every single piece, vampires will emerge. Imagine this scenario again, but with employees who could identify each piece of inventory as a dollar sign. Imagine how a supply chain could be built with people who got excited when vampires were eliminated and felt that their employment was being positively affected. Imagine if every “replacement” item was met with accountability and signing in or out items for traceability. This would cause less need for rogue purchases. The money the company would save could be astronomical. The entire culture of the warehouse would change because their purpose would be to use the enormous space for actual needs. What if truckloads of recurring high-use items could be purchased at industry lows like South West Airlines does with their jet fuel? The cost savings would be immense! But remember in our scenario, the warehouse did not have room for more usable inventory because the vampires had run amuck.
Check out your warehouse culture. How do your employees treat your inventory? Do they fully understand that they are the keepers of the health and livelihood of your bottom line? Are there vampires lurking in your midst? If you need to know more about how to create value in the very people you have on staff now, just ask! I would be happy to help you figure out a solution to a real blood sucking problem.
About the Author: Danah Head is an executive advisor for The Distribution Team. Danah has earned both her MBA in Technology Management for Supply Chain and MAED in Adult Education and Corporate Training. While pursuing her education, she worked in different purchasing and supply chain roles within the manufacturing industry. She has real world experience and technical training to help find the best solutions for warehouse and distribution companies. For more information, call (918) 992-5022 in Tulsa, Oklahoma or e-mail Danah@Distributionteam.com. Also be sure to visit The Distribution Team online www.thedistributionteam.com.