It’s all over the economic news today: “Inventory levels are up. . .Inventory levels are down. . .Inventory levels are flat.” Depending on what you make as a manufacturer, there is no doubt that one of these news soundbites is associated with you. It’s also certain that your inventory levels have a lot to do with your profitability and competitiveness. In this first installment of our two-part blog series on manufacturing inventory reductions, we will take a brief look at the what inventory is, and its potential for being a drag on profitability.
By nearly all measures, inventory is the largest single asset on the balance sheet of many manufacturers and distributors. It is usually the most expensive asset to own and maintain as well, with estimates of carrying costs typically running 25-30 cents or more on the dollar annually. With this in mind, it is easy to see how the optimization of inventory levels would have a great impact on a manufacturers’ bottom line. But of course, this begs the continuous question, “What are my optimum inventory levels, and how do I achieve them?”. (more…)