Inventories lag as sales grow - supply chains balancing act

While many on the economic front were drawn to two numbers - the unemployement rate which was lowered to 8.5% the lowest it has been in 3 years and consumer spending/confidence was inching upwards - two signs that the economy is slowly moving upwards. There is another report, less heralded, but just as interesting: inventory levels. The wholesale inventory levels barely grew at the end of 2011, yet the sales for wholesale did well. For the month of November, the inventory level grew by only 0.1%, yet sales in October grew at 0.8% and in November 0.6%. Is there a disconnect there? Clearly the wholesale supply chain did not properly plan the growth of inventories to keep up with demand. Granted, it is not as simple as turning on a faucet and producing more inventories. Add to this the strain on inventory that certain companies such as Toyota suffered due to natural disasters and there is invariably going to be a drop in the availability of inventory.

What it does remind us, is the fact that we are still stuggling to close the loop between planning and execution.The growth in sales in October coupled with the upcoming holiday season, should have been signals that inventories needed to be ramped up. Now maybe the plans did not forecast a continued growth trajectory, but with a better tuned ability to sense, these companies could have done better responding as well.

I am fairly certain that we will see inventory levels grow a more rapid pace over the next few months to catch up with the demand. I also realize that there is a lag time between inventory and demand. The situation remains a good example and reminder of the importance of closing the window between sensing and responding to changes and shifts in demand.

Maybe it is time to buy some stock in manufacturing companies!