Why is inventory dangerous?

Click on the Photo to Visit our Training Page!

​  Many people wonder, why is inventory considered wasteful?  Inventory in itself is not wasteful.  However, inventory that has no demand associated with it is wasteful.  Inventory waste is any unnecessary storage of materials, products or information.  The key there is the word, unnecessary.

Click Here to Subscribe to Our YouTube Channel.

  Many people don’t realize that inventory is a lot like a graveyard.  It is where the materials you have on hand lay until some demand becomes associated with it.  Using this analogy, we can better understand why inventory is so wasteful and detrimental to a company.  Let’s look at a few different reasons why inventory can be bad: 

1. Firstly, inventory ties up capital.  When inventory has no demand, capital is tied up with no hope of turning a profit.  In addition to this, that inventory will likely require more resources to get it sold. 
2. It also takes space to store your inventory.  When inventory space continues to grow, maintenance costs will rise, warehouse insurance will go up and your company will need to pay taxes on these assets.  In short, your holding costs will skyrocket as you grow your inventory. 
3. Another reason why Inventory is so dangerous is obsolescence.  Inventory, especially inventory that has a shelf life can lead to extreme losses if obsolescence occurs. 
4. Inventory can also hide problems in your organization. 
5. Finally, any form of inventory requires resources.  You have to move it, count it, store it, use energy and operations to manage it.  In short it creates waste and the more inventory you have, the more waste you create.

​With all this in mind, the biggest challenge you will face when lowering inventory and implementing a pull system is your culture.  Many of the individuals you will be working with will have a mindset that has been ingrained in them for a very long time.  We depend on our inventory, how can we function if we lower it?  That is the challenge.  Convincing those individuals that inventory is crucial, but only the inventory you need.  When they see what can be done by pulling to demand and it affects them directly, they will learn.
Challenge:

• What benefits might you see from lowering your inventory levels?  Share your thoughts in the comments section below and receive a coupon to one of Lean Strategies International LLC's courses.

Click Here to Learn More About Building to Demand!