Monday, January 27, 2014

The theory-practice gap in inventory management

As we read in the article of Walmart’s empty shelves crisis [1], it seems that Walmart does not have enough associates to move the back storage to its shelves. Meanwhile tones of the theories we can find online about the best practices for the inventory management. Why did Walmart fail in its inventory management mission? The media are arguing that the failure is due to its large labor cut. However, as a leading retailer company, Walmart certainly knows what the best theories are.

I believe Walmart did its calculation on the consequence of cutting labor hours. I do not have any doubts on the crossing training Walmart provided to its employees. Walmart did its analysis on crossing training, pooling the work resources and further increasing its bottleneck utilization rates. However, these are all theories, the most ideal case scenarios. For example, we know we should use First in First out (FIFO) inventory management strategies to avoid the obsolete stock. In reality, the warehouse workers have their own ways to move inventory around and they usually use total opposite way (LIFO) to handle the inventories.

Why? Because the prior inventories are at the very bottom/inside of the stocks, it will be much easier for these workers to move the latest inventory to shelves. These factors are never built into model consideration and it is neither merely human error nor random variation. There are a huge gap between the pure theory and the real practice. The gap will cause severe miscalculation and profits and operating efficiency will get hits. Company culture or philosophy may help to resolve this problem. Furthermore, the management team should always take close look at how people operate in the production. It is worthwhile to study not only the best practices but also how to implement these theories into the real operation.

At the end, every company has its own culture and management style. Will the best company culture or philosophy ever exist?


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