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Lean but not hungry - IOM warns on dangers of re-stocking

20/05/2010 00:00:00

Efficient management should resist the temptation to increase inventory now that there are signs that customer demand may be inching up. The Institute of Operations Management (IOM) has warned that the benefits generated by reducing stock holdings during the past year should not be squandered by restocking to pre-recession levels.  If demand has bottomed out and is now on the up again then more inventory may be needed – but not too much!  Instead, businesses could use the advantageous trading conditions to improve supply and understand customer demand better.

Leonie Edwards, Manager – IOM, says that now that inventory is lean opportunities must be taken to maintain that situation and to take advantage of the benefits deriving from the imposed reductions in stock levels. She says ‘Businesses coming out of the recent hard times have inevitably learned new means of efficient operations at relatively low stock levels.  Stock is waste – if you know when a customer wants your product then there is the opportunity to deliver without having to carry the added cost of that stock investment yourself.  Accurate forecast of demand can yield substantial benefits, lowering costs and improving efficiency.’

IOM says that lower stockholdings produce benefits for both suppliers and customers.  Edwards says ‘A mutually advantageous partnership between supplier and customer, rationalising stock levels held by both, should mean that the customer is never without adequate supplies but that waste is taken out of the supply chain. Reduced delivery quantities benefit both supplier and customer by improving cash flow, reducing warehouse requirements, and sharpening efficiency. Industry should take advantage of the massive improvements in supply chain speed and efficiency achieved in recent years – efficiency gains which themselves have made a significant contribution to the lean business philosophy.’

IOM says that suppliers and customers must now, as always, determine the compromise between the availability of product when the customer wants it, and the cost of achieving the supply.  At the present moment in the economic cycle it makes sense to carefully examine more resourceful ways of meeting demand rather than laying in costly stocks ‘just in case’.