industrial engineer and businessman, Taiichi Ohno, once said,“ The more inventory a company has, the less likely they will have what they need.” Heavy machinery uses thousands of parts, meaning that a supplier needs to have tens of thousands of parts available. While things have improved greatly since Ohno’ s day, shrink and swell continues to be a relevant concern for many businesses.
Most companies follow one of three common business models to determine inventory production and / or purchases.
The Pull Strategy gauges its inventory based on clear demand from customers. When a customer“ pulls” a product off the shelf, it is quickly replaced to keep pace with customer demands. Even though this strategy keeps inventory costs low, an obvious downside is what would occur when consumer demands suddenly rise, resulting in shrink and stocking out.
At the other end of the spectrum, the Push Strategy maintains inventory based on expected or forecasted demand. Using this method, a company would produce many products at one time,“ push” them onto the shelves and then wait for the customers to come in. This keeps operating costs low, but problems with swell can occur if consumer demand does not meet forecasted levels. Then the company is potentially left with a glut of inventory that they can’ t sell.
Some companies opt for an apparent compromise between these two methods by implementing the principles of both— the Just in Time( JIT) Strategy. The JIT model relies on companies having raw materials on hand but not actually creating the product until the demand comes in. While this does keep overhead low, it runs the risk of creating delays in delivery if the demand fluctuates. Although no strategy is foolproof, a careful analysis of business metrics will help companies find a method that produces the most predictable results
14 • 800-247-2000 • October 2024