Your feature on the evolution of supply chains (Big Read, December 21) implies a fundamental shift in how manufacturers operate.
It is true some have traditionally operated on a “just in time” basis, but it is less so for fast-moving consumer goods producers. They typically operate on a “sell from inventory” model and use it to synchronise demand and supply — often holding enough inventory to last for weeks or more.
While company finance departments want to operate with inventories as lean as possible, best practice is to rightsize holdings. This should be based on forecast demand for a product, the accuracy of your forecast, the lead time to replenish it and how reliable your supply base is. The key is to hold the right level of inventory; not too much, but not too little.
Inventories were bound to increase to maintain that “rightsize” principle. They will stay that way at least until this volatility and uncertainty subsides. When they do, we should expect them to adjust again accordingly.
Freddie Wilson
Droitwich Spa, Worcestershire, UK
Letter: Another take on how inventories have grown
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