Book Order Form | Table of Contents | Preface | Chapter 1 | Chapter 2 | Chapter 3 | Chapter 4 | | Chapter 5 | Chapter 6 | Chapter 7 | Chapter 8 | Appendix A | Appendix B | Glossary

Appendix B
Laws and Lies of Inventory Management

Laws and Lies selected from the book The Laws of Management Physics, A Hand Book for Hands-On Managers, by Dick Dadamo.

• Law 22: "The longer something takes to happen, the less chance it has of actually happening!"
  This certainly applies to inventory because the longer parts or components sit in inventory, the chance lessens for them to be used.
    

• Law 24: "As time passes, the monthly revenue level has to change to meet the bookings level."
  If the book to bill ratio of new orders to shipments continually stays below one, the organization and inventory must be adjusted to the bookings rate, and adjustment downward must be made.
    

• Law 37: "The quality of a product as perceived by the customer goes down as the customer’s need for the product goes down."
  A customer who is in trouble or who discovers after waiting for delivery that he no longer needs the product, will reject it and return it for a refund, playing havoc with the inventory, the inventory build requirements and ultimately the revenue figures.

"I don’t have an inventory problem."

Said by a Manufacturing manager when the walls of the store room are bulging, and the cash flow has dried up. After all, it’s not his money at risk.

"The revenue is in the bag."

I marvel how a revenue forecast given the last day of the month can be missed time and again. The missed revenue kills a plan for managing cash and ties up assets for longer than they should be. I also wonder, why, when the revenue is missed, there isn’t a bigger shipping output the following week.

"Next month we’ll have plenty of shipments and those will be linear."

This means that going into the last day with 80% of the revenue still needed, they will have to ship 5% every hour on the hour through the night and into the morning. Shipping the majority of revenue on last day of a month is scary and adversely impacts cash flow. It should be drilled into manufacturing minds that the sooner something ships, the sooner you will get paid.

"We’ll be back on schedule before the month ends."

Unfortunately, it will require breaking records for daily shipments just to get close to the month’s shipping commitments.