“Inventories down, cash up”

Get lean without the yo-yo effect: Prof. Götz-Andreas Kemmner, supply chain management expert, explains how to sustainably reduce inventories by six figures.

SMEs want to remain as independent as possible when it comes to financing. What is your advice? How can our readers obtain fresh money without external investors?

By specifically saving stocks! This is an important source of liquidity for many companies – large and small. This should not only be tapped when capital is needed in the short term. Capital should always be used as efficiently as possible – and investing unnecessary money in stocks is the most inefficient use of capital.

Can that be more specific?

Many companies have too much stock around their hips: 80 percent of companies live with at least 20 percent more stock than is economically necessary. Reducing inventory by this 20 percent enables a typical company to increase its cash by half or reduce its long-term liabilities by a third. In addition, inventories cause ongoing annual costs of 20 to 30 percent of the inventory level!

But why do companies often carry too much around with them?

It’s very similar to our private lives with the fat on our ribs: We know that we need to do something for ourselves. But given the various demands – work, family – we hardly have time for fitness activities. Companies are also confronted with various requirements: Product ranges are changing faster and faster, the number of variants is increasing and customers are demanding ever shorter delivery times. At the same time, our supply networks are becoming increasingly branched and complex, making them more difficult to understand. All this often leads to unnecessarily high stocks. Many companies are also unaware that their supply chain is completely out of shape until the threat of financial collapse finally looms due to ever-increasing costs. Others, on the other hand, look fatalistically at their mountains of stock and do not believe that they can be reduced.

How can you achieve the optimum?

Once again, it helps to look at your private life: If I only pay attention to my diet in the short term or do a lot of sport, the weight goes down. But once you get back into the habitual rut, the yo-yo effect sets in. I can’t achieve my desired figure in the long term with short-term diets, but only by consistently changing my lifestyle. We like to talk about logistical positioning. The lack of logistical positioning is often the reason why inventory reduction projects fail before they have even begun. As with losing weight, the process starts in your head! Once a clear logistical positioning has been established, sustainable inventory optimization is a task in which all areas of the company must be involved – ideally, at least in the second step, also the suppliers and customers. Inventories are the symptoms at the end of a long chain of causes and effects that extends through the entire company and must be broken down in detail in order to achieve the economic optimum. The typical inventory problem areas in companies relate to inadequate demand forecasts and planning processes, incorrect value streams and unfavorable product structures.

So everyone has to pitch in?

Exactly: even the management, which likes to delegate inventory reduction downwards! Only she has an overview of the entire company and can make the decisions necessary for the overall optimum. And it can decide whether the company has sufficient detailed knowledge on the subject of supply chain optimization – and if not, react accordingly.

The questions were asked by Ingo Schenk

Image rights: Depositphotos_32648999_original_c_by_DinisTolipov

Picture of Prof. Dr. Andreas Kemmner

Prof. Dr. Andreas Kemmner

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