How to Modify an Inventory Policy

Recently, I was able to here a presentation put on by Greg H. Parlier, PhD, PE. Greg works for a company that does a considerable amount of work for the government and presented on a project that he is working on with the Army. The project is to revamp the inventory policies that Army is currently using. One aspect of the presentation that is related to our most recent class is the use of the exchange curve. Greg's company developed an exchange curve that showed an example where the Army was currently misallocating $1 million worth of inventory. This was just an example and if applied to all of the armed forces the misallocation would be in the billions. This means that to have the same results the armed forces could get by on billions less. This evidence was the compelling information that has now launched a major overhaul of inventory practices. After the presentation I asked Greg, how his company was able to get approval for their work, since at this point he had only talked about reporting to a 2 star general in Huntsville. He then informed me that his boss had to present to a 4 star and after a consensus with other 4 stars the approval was given.

I believe that this is a very important detail. Often times the people in an organization that have the knowledge to make a difference do not have the authority to do so. As Greg told me the only way to get the attention of those with authority is to gather a compelling argument. However, this takes time, and then after approval is gained additional investigation is needed, then considerable time is needed to implement the changes, finally results will be measured and hopefully some continuous improvement will be made.

This brings me to my final thought, I have been hearing a lot of talk about how the current economic conditions are going to change inventory policy. I am not sure that this is true. I believe that good companies are always evaluating their policies and working on improvement regardless of the current economic conditions. Other companies I feel will not effectively change policies, either they will make a change without doing the proper research and get marginal results at best (ex. companies trying JIT without understanding what that means), or they will simply stick with what they know.

If companies are in a crisis and must have the reduced expenses that would come with an optimization of inventory policies, that realization of reduced expenses is a considerable amount of time away, I am not sure that those companies will survive to implement those policy changes. Instead, I see companies using old tactics to cut costs, not new policies to gain efficiencies.

Jason