This theory of inventory management posits that retailers, wholesalers and manufacturers carry only a minimum inventory, and this will maximize profitability. Otherwise you are tying up money that could be in your bank account drawing interest, invested in the market, or any number of other things that are revenue generating. Excessive inventory is not revenue generating, it’s a cost, not a profit.
The theory holds that as the last jar of “Bob’s Peanut Butter” is going out the front door of the store, the first jar of replacement inventory is coming in the back door to replace it. Therefore you are never “out of stock”. You’re also not tying up dollars in inventory.
As we’ve seen, Just In Time Inventory Management is great in theory, and terrible in practice. When the Pandemic hit America and everyone began to “stock up” on everything from toilet tissue to cereal, it took only between ten and fourteen days before the entire pipeline was empty. From the manufacturer to the retailer, the entire pipeline was depleted – because everyone from the manufacturer to the retailer is working on “Just In Time Inventory Management”.
Years ago the manufacturer would keep, as an example, 100 days of inventory of all of his product line, or at least the core elements of his product line. Today, the manufacturer is keep between 14 and 21 days of inventory. When the consumer decides to purchase 10 rolls of toilet tissue instead of the usual 2 rolls it skews the entire system , and just like magic there are shortages galore.
It’s not over! The Harvard MBA’s are still running the show, and they still adhere to “Just In Time Inventory Management.” It’s more profitable for the manufacturer, for the wholesale distributor, and for the retailer.
The only people who lose in this scenario are the consumers who end up standing in line trying to purchase whatever the store has that day. Which is very similar to the old Soviet Union – long lines of people waiting to see what was available to buy that day.
Robert J. Kelley
Old Orchard Beach
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