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Where has all the Inventory Gone?

by Charlotte Freed | Oct 11, 2016
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After the advent of Just-in-Time (JIT) inventory from the 1980s, now called Lean Manufacturing, transportation experienced significant changes in the ebb and flow of product deliveries and how they meet their final destinations. Lean manufacturing runs a thin line to encourage adequate supplies without excess inventory and its associated costs that excess stockpiles of product create.

Understanding this balancing act

Companies employing lean inventory practices must balance not having product out of stock with having too much product in stock. A disadvantage to this type of delivery is that it requires an upfront investment in technology to sync all the necessary parties that support this delivery system between retailers and suppliers in the distribution channel.

Changes in warehousing

The impact to transportation includes warehouses located closer to their factories. Here, the inbound warehouse receives inventory from core suppliers and sequences those strategic materials to support the next few hours production schedule. Then, as Steve Banker describes in The Costs of Excess Inventory, uses trucks making “milk runs” to deliver those materials just-in-time to support the next wave of production (two hour delivery windows are not uncommon).

If for any reason strategic materials cannot be delivered, this downtime can cost manufacturers millions of dollars with the advent of large fines (up to $4,000 per minute) for any trading partners that fail to deliver and whose failures cause production downtime.

However, by implementing these lean inventory systems, and moving from four weeks of inventory to three, inventory carrying costs savings in one year would be $65 million. In this example presented in the Banker article, “the total two year payback period from inventory saving would be $130 million. The savings associated with leaning out upstream inventory can be significant - outstripping the costs of new technologies, implementation and training.”

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