Are you concerned with how much inventory you have in stock?
Do you know what is meant by a ‘Zero Inventory Mindset?
This article explains three questions to ask and how to apply the Zero Inventory mindset to your inventory.
We Don’t Live in an Idealized World
In an idealized world there would be instant inventory replenishment and zero inventory.
Instant replenishment would mean that whenever an item is needed it would be instantly available. Companies would hold no stock because they could get delivery in the required quantity, in an acceptable time frame, all the time.
But none of us live in an ideal world and we canāt get instant replenishment.
What you can do, however, is take an approach to inventory decision-making that questions the need for the inventory or the investment. This doesn’t require an idealized world, it requires a zero inventory mindset.
Three Questions for a Zero Inventory Mindset
Adopting a zero inventory mindset is not an action, it is a perspective or framework for all of your future decision-making. The key is to ask three questions before making any commitment to continuing to hold or adding to your inventory.
The three questions are:
- Is the stock is really needed?
- Who should make the investment?
- How can planning and process redesign minimize the investment?
When asking this question, you need to identify and consider the alternatives to actually holding the stock.
For example, could it be supplied on sufficiently short notice or substituted with another item? Or, would the user be prepared to wait for delivery without the wait impacting your competitive position?
For engineering spares, is there an alternative production processing path that could be used while the spare is delivered?
Do not forget that all inventory costs money. By questioning the real necessity of adding an item to inventory, you are questioning whether an investment should be made in that inventory.
This is the point at which most inventory thinking stopsādo we need it? The automatic answer is yes. Then the next step is order some. However, a zero inventory mindset doesnāt rely on automatic answers, it goes beyond this level of thinking and asks questions about whether to invest before deciding how much to invest.
Once it is determined that that a company needs access to an item with almost no notice, it is almost invariably assumed that the company should be the one to make the inventory investment.
A far better alternative is to have someone else make the investment. From a cash perspective, having someone else make the investment means that you delay any payment until actually needing the item. (And if we are being honest maybe 30-60 days later.)
Many suppliers are willing to make the investment in your inventory if it guarantees that they maintain continuing business with your company. Before committing to an inventory investment, you should always explore the possibilities of consignment stock.
If it is determined that an item is needed and that the supplier is not prepared to support their ongoing relationship with your business through consignment, then you need to determine what actions you can take to minimize the investment in inventory.
These actions should focus on your internal processes. For example, do you have excessive delays in processing orders for replenishment stock? Or do you have delays in receiving replenishment stock? These aspects of your āinternal supply chainā can add significantly to your overall lead time and so add to the level of inventory you need to hold.
You might also consider how you decide your ROP and ROQ settings (or Min-Max if you use that approach). Often companies allow this to be ad-hoc or even āset and forgetā ā both sure-fire ways to hold excess stock.
Can you improve coordination with the planning function and so order more parts for planned usage and hold fewer spares on the shelf?
Apply the Zero Inventory Mindset Every Time
It is by asking and answering these questions every time an inventory decision is made that you start to shape a zero-inventory mindset. Ultimately a zero-inventory mindset is not about achieving zero inventory, but about not accepting that you must hold or invest in inventory.
A zero-inventory mindset is about exploring the opportunities for reducing the inventory investment rather than accepting that inventory is a given. A good parallel is with the approach that many companies take with safety.
Many companies adopt safety policies such as āno injuries to anyone ever.ā Do they believe that they will prevent all possible accidents? Of course not. Will they do everything they can to prevent accidents and injuries? Yes.
It is the same with inventory. Will you need to hold some inventory? Most probably. Should you do everything possible to minimize that investment? Of course!
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Posted by: Phillip Slater