11 Dec 2020

Do We All Have Inventory Fetish?

I mean the Lean Fetish that says Inventory is all evil.

I just read a post on Linked-In that said Work-Center Utilization metric is a "Dysfunctional Metric" and goes on to say this is one of the top 10 dysfunctional metrics in the supply chain because it will produce excess inventory.

Do you all really believe anyone would be that insane try to maximize the work center utilization metric perversely to create excess inventory etc?

I would argue this is not dysfunctional at all. In fact, it would be deadly if we don’t have a view of what our line utilization is by each line and for the total factory.

For S&OP, you need to understand the utilization across lines to optimize your production decisions.

20% capacity utilization in one work center is okay. What if you have the same on all work centers? Are you going out of business?

If your utilization continues to be low, you either sub-contract for your competitor and make a slave wage or be ready to shut the door.

Capacity Utilization is a key metric for the supply chain and for the long-term survival of the business. In the long run, a business has to increase its ROA and ROI.

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