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Thursday, December 14, 2006

Causes of Excess Inventory

Furniture World offers a very good article by Tom Craig titled "Are You Inventory Rich and Cash Poor?"

The article offers up a good list of the causes of excess inventory and the actions that can be taken to address it.

Some of the causes:

  1. Business fear losing sales from not having product.
  2. Companies take good deals and stock up with more inventory than is needed.
  3. Companies do not write off value through out the year for fear of hurting profit margins only to be left with inventory that cannot sell at all.
  4. Demand management planning techniques are not used to determine need.
  5. Companies build in longer delivery time allowances for suppliers that fail to perform increasing the inventory holding time between shipment and late shipment.
  6. Companies that have no process for ordering inventory are more likely to cushion their operations with too much inventory to keep their customers happy and avoid their own delays.
  7. Companies might use the same process for inventory management on product types that are not homogenous and do not share similar turn or sales characteristics.