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There is a famous anecdote about Volvo car dealers heavily discounting green models because consumers preferred other colors. Volvo’s manufacturing plant, seeing the resulting spike in demand for green models, perceived it as consumer interest and upped the production. That’s right…even more green cars! Ouch!!

 

It’s a sad story that’s often repeated, and a story that begins with a demand-shaping strategy to offload unwanted inventory. It’s a prime example of how a dealer’s {read distributor’s} behavior can create confusion and lead to unnecessary increases in a manufacturer’s inventory holdings and, by extension, the stock of its suppliers, too.  


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“No one ever achieved greatness by playing it safe.”

 

This quote is attributed to Harry J. Gray, an iconic business manager and philanthropist who, through acquisition, assembled one of America’s largest manufacturing corporations. During his career, he received numerous recognitions and honors and was inducted into the Junior Achievement National Business Hall of Fame. My guess is that Mr. Gray was an expert at risk assessment and containment.

 

Wikipedia defines risk as a consequence of action taken in spite of uncertainty. Given that uncertainty is a fact of life in business, risk management is not only unavoidable but essential. In the context of inventory management, the most common risk strategy against stock-outs is to purchase extra inventory as safety stock.


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When supply chain professionals plan for future demand, their thoughts gravitate to meeting customer service levels while minimizing the amount of capital tied up in inventory.  Demand planning is about having the right product in the right place at the right time … right? Four occurrences of the same word would cause my old English teacher to shudder at this excessive use of a word in a single sentence. However, let us return to the important business of meeting consumer demand without incurring the cost of excess inventory.


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