Tom Andel

Inventory managers riding out market turbulence
January 11, 2008

I just wrote a news story for our February issue reporting that after 10 consecutive months of expansion, economic activity in the manufacturing sector hit the ceiling in December. We tend to read doom and gloom into these kinds of reports, and knee-jerk investors participate in self-fulfilling doom and gloom. But as every Paul Harvey fan knows, there’s always “the rest of the story.” 

The rest of the story is that inventory managers are the real power brokers when it comes to riding out these waves of market turbulence. Norbert J. Ore, C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee, told me that the customer inventories index was Fed Chairman Alan Greenspan’s favorite economic indicator because he felt it gave a much earlier signal of where the economy was heading. He was right. In October the Fed referred to the customer inventories index when it detailed the signs that there was too much inventory in supply chains. In fact it was one of the reasons there was a rate cut.

“Inventory managers have to decide if their sales forecast is realistic for the inventory levels they’re trying to maintain,” Ore told me. “You have to balance availability against the probability for the economy for 2008.”

Sure. Sounds easy. It’s not, if you try to figure it out by yourself on the back of a cocktail napkin. But you have resources available to make this task less daunting. Ever talk to you marketing department? Your sales department? Your customers? That’s much of the battle. Knock down your organizational walls.

The other part of the story? It’s spelled WMS. Many organizations underutilize their warehouse management system, making more use of its tactical role in order processing than its strategic role as a planning tool. Some WMS vendors offer planning modules that help forecast upcoming inventory needs, strategically schedule purchase orders to suppliers and manage inventory budgets.

Doom and gloomers are forecasting recession this year. Ore isn’t one of them. We’ve only seen a couple months of flatness. He says it takes at least six consecutive months of this to point to recession. He believes global demand will keep us from an overall recession. He also believes there will be further fed rate cuts in the spring, and although we’ll still have a weak dollar, that will help prevent a manufacturing recession.

Now the ball is in the inventory manager’s court. All you have to do is minimize your inventories and predict when the next sales uptick will be. That’s all. Isn’t it?

Tell me what’s missing from this picture.

Posted by Tom Andel on January 11, 2008 | Comments (0)