8 reasons why you have too much inventory

This is the recurrent concern in every company. There is of course not a unique reason but a global context that lead to this situation

Reason#1：Price pressure / Forecast presumption

It’s not a surprise that the pressure on the cost is getting stronger and stronger. Thus one of the most well-known option for the sourcer to better pricing is to commit for larger quantities. Simply trust the forecast that have been made by the sales & marketing, bet that the number will be reached, may be in a longer period than expected. So the target price of the product will be reached, but the excess inventory is not under control.

The problem will appear after couple of month production, if the committed volume does not reach the forecast. Another risk will be technical modifications which may happen, making some components inventory become obsolete!

Reason#2：Not enough time / Product Life Cycle is getting shorter

Processed during the product development by engineering, sourcing and PM need to be covered within a shorter leadtime. One of the solution to catch the milestones will be to reduce the number of vendors thus reducing the workload of the sourcing activity.

The consequence will be less negotiation leverage on the cost and on the procurement conditions, or say, different negotiation leverage which need you to adopt new methods, make new analysis. For example, change from negotiating volume to volume consolidation across vendors.

Reason#3：More & more data / Component life cycle – Environmental concern

The reduced product life cycle is also applicable for the components which will be used into the product, requiring the project team to take those additional data into consideration. In addition, more regulation for environment protection need to be respected. The project team will need to make sure of the compliance, such as REACH. All this consist in more data to be handled by the sourcing and project team, creating more workload and less time allocated for cost & inventory control.

Reason #4： High-Mix / More Products, more BOMs, more Data.

To catch more customers, more market shares in a competitive market, every product manufacturer will enlarge its product offer, increase the product mix. This trend started in the 90s with the automotive industry and now is applicable to every market segment. The consequence of this increasing product number will be more components, more BOMs to manage. Making sourcing and procurement activities more complex and time consuming.

Reason #5 ： High-Mix / Low volume / Care about MOQ-SPQ

The consequence of the High-Mix is the low-volume. Managing lower volume productions require the sourcing team to pay attention to additional data that they may not be considering before. For example, the Minimum Order Quantity (MOQ) and the Standard Packing Quantity (SPQ) will need to be taken into consideration in the cost. It’s not a very high difficulty, but it’s more data to collect from the vendors, to compare and analyze. Set-up advanced logistics features such as Cancel Window and Reschedule Window to have a more flexible supply-chain will keep staying at the dream level.