February 2010
Sometimes, it’s helpful to step back and ask the ‘big question’: Why do we have xxx? Or why do we do yyy? It’s easy to get wrapped up in the details and lose sight of the overall objective. Let’s look at a couple of answers.
1.a. Why do we have inventory?
The answer is not “because we have always had inventory” or “because everybody does” or even “It makes me feel more secure”. Inventory is a buffer against changing demand (forecast error), quality problems, late receipts, and production delays. Inventory also lets us shorten the effective lead time to deliver products to customers. The follow-on question is …
1.b. Do we have the right amount of the right inventory to achieve those objectives? You might also have inventory as a result of purchase price breaks or because of long lead times for parts and materials. Again, you should periodically reevaluate those inventory levels and those suppliers in light of carrying costs, transportation costs, obsolescence risk, and other factors that contribute to the overall cost of holding those items in stock. If left to themselves, inventories tend to grow. It takes an extra effort to revisit inventory and make new decisions about how much is really serving a purpose and how much just accumulated or is there for reasons that are no longer valid.
Consider these questions:
2.a. Why do we have computers systems and software? Obviously, it is nearly impossible to operate a business today without basic computer support but I’m asking you to think back to the reasons and justifications you used when you made the system purchase(s). There was undoubtedly an ROI justification (hopefully documented) that specified certain benefits sufficient to reward the company beyond the costs incurred.
2.b. Did you achieve those benefits?
2.c. Are they still important to the company?
2.d. Have conditions changed such that there are different objectives that can be attained with the current system, additions to the system, or a replacement system?
Most companies did not reap the full measure of benefits anticipated when they bought their system(s). But they can almost always go ‘back to the well’ and recapture some of those savings and improvements with a modest investment in consultation, training and effort. Most companies already have systems in place that are adequate to deliver what the company needs to survive and prosper. Most could do a lot more with what they already have in place. In many cases, additional applications can multiply the benefit and provide a good return on this additional investment. In a minority of cases, the system no longer serves the company’s needs and should be replaced. But, wouldn’t it be good to know that, too?
Contact us if we can help you complete an objective evaluation of current system usage and make recommendations on how to get more out of your system investment.
