Business Core · Supply Chain · Module
Inventory
What is held, where, and why — balancing the cost of holding stock against the cost of not having it.
The idea
How it works
Inventory is cash in physical form, and it is the form that can spoil, obsolesce or be counted wrongly. Holding it is a decision to buy certainty with cash, and it is worth being explicit about the exchange rate.
Safety stock exists to absorb variability in demand and in lead time. Sized without reference to either, it is a number someone once felt comfortable with, and it will be either wasteful or insufficient.
Working with it
In practice
- 01
Size safety stock from measured variability
Demand spread and lead-time spread, at a chosen service level. Not intuition.
- 02
Segment by value
A small share of items carries most of the value. Manage those closely and the rest by rule.
- 03
Find what is not moving
Slow stock ties up cash and hides. Report by age as well as by value.
- 04
Count often enough to trust the number
Inventory records diverge from reality continuously. Cycle counting keeps the gap small.
One level in
The components of inventory
A component is something that exists afterwards which did not exist before — a deliverable or a mechanism, not an intention.
Safety stock sized by intuition is either wasteful or insufficient. Derive it from measured variability and a chosen service level.
The other modules in supply chain
Sourcing
Deciding where inputs come from and on what terms, including how much concentration the organisation is willing to carry.
LearnLogistics
Moving things from where they are to where they are needed, on time and intact, at a cost that makes sense.
LearnResilience
The capacity to keep supplying when something goes wrong — which it will, and rarely in the way that was planned for.
Learn