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The Human Element in Inventory Control
Basic
techniques of inventory management go way back. Early in the last century,
for example, the Ford Motor Co. devised methods to calculate unit costs for
the Model T and project production needs so that it could determine when to
buy raw materials and how much to buy.
Today, slide rules and adding machines have given way to more sophisticated
tools, yet companies still wrestle with the basic questions of
"When?" and "How much?"
With all the advances in technology, why are the basics still somewhat elusive?
Why do so many manufacturers still carry more inventory than they need or run
out at precisely the wrong time?
The answers may be as complex as the human choices that go into the process.
Managing inventory, after all, requires numerous data inputs based on human
decisions growing out of very different evaluations of the same data.
Conflicting Policies
Sometimes management policies conflict with methods used to measure success,
creating dissension among the people who are charged with achieving the
company’s goals.
Take, for example, the situation of a manufacturer of hose and tubing
products. The company’s primary market is the automotive sector, but it also
serves a number of smaller, more fragmented markets. The company operates
under just-in-time principles, so it strives to keep inventory levels down.
Margins are tight, so the company is stepping up its sales effort, offering
sales staff significant incentives to meet aggressive sales goals.
Consequently, the sales staff presses hard for boosted production to meet
anticipated new demand.
The production staff has its own reasons for increased production, since its
performance is judged on the basis of unit costs and efficient use of
equipment. The more the plant produces, the better those numbers look.
Given these dynamics, no one has any compelling, performance-based incentive
to minimize inventory. When finished goods pile up and cash flow slows to a
trickle, everyone points the finger at someone else.
Process Examination
Examine your own manufacturing processes and consider how your company might
be creating disincentives to good inventory management.
Staffing — Because it is costly to recruit and train staff, employee
retention is often a company goal, even when a business slowdown points to
the need to reduce staff. When management focuses on keeping
people busy despite slack demand, the result is often a pile of excess goods.
Productivity — Many companies create incentives to keep equipment in
use and boost employee productivity. Sometimes these efforts encourage small
batch orders that require the reconfiguring of product lines, leading to
equipment downtime.
On paper, the numbers may seem to management to justify this approach, but
things may look different on the shop floor. Production staff may look at the
downtime that comes with reconfiguration as an obstacle in meeting
productivity targets.
Accountability — Sometimes, inventory piles up as a result of efforts
to avoid embarrassment. Perhaps a product didn’t meet quality standards,
flopped in the marketplace, or was discontinued because of poor design. In
such cases, it may seem less painful to bury the product in the warehouse —
and in the books — than to get rid of it and admit the mistake.
Solutions
When policies and objectives create such conflict, finding a solution depends
on identifying the factors to blame. Begin with a careful assessment of all
the processes that affect inventory.
- Weigh policies and practices against one
another. Do they support each other? Or are they in conflict?
- Get management consensus on strategy in all
functional areas. That way, you can minimize conflicting goals and
achieve optimal inventory levels.
- Align performance metrics throughout the
organization so that they all support the same goals.
- Determine whether employees need education
about the significance of cash flow to company success and their role in
achieving a healthy cash flow by controlling inventory.
- Help employees understand corporate objectives
and motivate them to help support company goals.
- Look at supplier relationships to identify
opportunities to collaborate for improved inventory control.
- Report performance measures
related to inventory to the whole company and reward employees openly
for progress.
Attention to the human factors that affect inventory management is an
important element in the effort to achieve optimal inventory
levels.
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