Recently, a lot has been made about the current measurement decreasing (ever so slightly). As you can see below, they had been going down for most of 2016 and now have stayed steady in 2017:
|Inventory to Sales Ratio through June 14, 2017|
As a supply chain professional I also tend to cringe when I see the contents of this graph. To discuss this, let's ask ourselves why we have inventory in the first place. Two key tenets of supply chain management:
- Inventory at rest is a bad thing: Said a different way, bad things happen to inventory. It can become obsolete, spoil (in the case of food), get lost, stolen or damaged. When inventory rests, you should see opportunity.
- Inventory exists as a buffer for lack of information: In a world where you have perfect information (i.e, perfect forecast, perfect purchase signals, perfect transportation signals) you have little need for inventory. Given this, more inventory relative to your sales indicates your progress in S&OP (Sales and Operations Planning) information accuracy is stalling. You are not improving this information flow, rather, you are making it worse which drives inventory levels.