____________________________________________________________________________________ Inventory Management
Forty-nine out of 50 states in the United States require drivers to carry some form of auto insurance . ( Live Free or Die , New Hampshire !). Yet the average driver in America files an accident claim only once every 17.9 years . If you ’ re reading this and you live in the US , chances are you drive , have car insurance - and didn ’ t make any claims this year . So : is it a ‘ smart move ’ to stop paying your car insurance bill ?
Obviously not ! Insurance fees are paid to cover the occasional risk that , hopefully , you don ’ t end up needing to use . It doesn ’ t mean it ’ s wasted ; that ’ s the nature of ‘ occasional risk .’ So why do so many executives hang on to the notion that ALL inventory is waste ?
Even in a distribution system with 100 percent predictable demand , deterministic transportation lead times , and periodic / batch replenishment , a level of covering inventory is inevitable . Add in variability in demand and uncertain lead times , and you get safety stock . If you don ’ t use your safety stock , it doesn ’ t mean it was a waste . You ’ re buying insurance against the risk of losing demand and potentially that customer you ’ ve worked so hard to serve .
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