Monday, 25 November 2013

Investing in Inventory is Not the Liability it Once Was

In a recent article in the CIE magazine, Adam Fletcher, chairman of Afdec and ECSN, talks about how the opinion on investing in inventory needs to be rethought as it's not the liability it once was.

It's a well known fact that excess inventory is a financial drain on any business. What's not as well known is that moving inventory (turning stock or consumed materials), is a real business asset for the electronic component supply network industries.

Commonly, manufacturers' inventory is measured as being below, on, above or grossly above target levels based on forecasting, results which purchasing departments then need to answer for. The disaster scenario is a 'stock-out' (no inventory) situation, generally caused by unforeseeable technical or supply problems or an unusual increase in demand. 'stock-out' situations have a knock on effect on sales targets and leaves managers wanting to know what went wrong and how quickly it will be removed.

Just-in-time, lean manufacturing is used in an effort to hold inventory in the range between 'below' and 'on' target levels. This approach works best when forecasting is accurate and stable and component lead times are low to stable. 

For the last decade lead times for a wide range of electronic components have been low, typically under two weeks, but this has not always been the case. In 2011, when a natural disaster occurred, lead times rapidly increased from 6, to 12 and then to 16 weeks and remained at that level for several months.

During this time, companies reliant on lean manufacturing had to reduce their output in line with availability and faced a huge loss in revenue. Some even had to temporarily close down plants altogether.

Fletcher goes on to explain that authorised distributors support over 95% of electronic component requirements. One of the important but little recognised roles of a distributor is to aggregate multiple customer demand and put the necessary inventory in place to effectively buffer the customer from lead time fluctuations.

Cyclops Electronics, an independent stocking distributor also offers a free Scheduling Service which gives you complete piece of mind, improved productivity and cost savings.

To read about all the benefits of our Scheduling Service, please visit our website.

Or alternatively, give us a call on +44(0) 1904 415 415 to talk through the options we offer.

No comments:

Post a Comment