Tuesday, February 7, 2012

More Inventory Fun

I was struck by this week's case study detailing HP's inventory management. In any business courses I have taken, inventory has focused on the value of products in inventory combined with the raw materials on hand. I had never before considered the issues that HP recognized when attempting to understand their exorbitant inventory costs. With computers (and other products with short life cycles such as fashion or fresh foods) the quick decrease in value means that a company is paying considerable inventory costs for products that are losing 50% or more of their value in the next 6-12 months.

I searched for some other articles online that would provide some follow up to this idea, but was generally unsuccessful. Just wanted to point out the interest I took in that aspect of inventory management.

The article I found that interested me was from a more macro perspective. Being an American, I was pleased with the reported gains in GDP recently. However, the Wall Street Journal has tempered my enthusiasm, pointing out that most of the 2.8% annual rate in the 4th quarter of 2011 was mostly due to greater inventories.

These gains can be either because companies have predicted strong demand in the future and have ratcheted up their supplies according or that companies previously saw increased demand that never materialized, leaving them with excess inventory. The article states that indicators look positive and that inventories are not thought to be excessive, but uncertainty remains.

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