Demand Planning and Inventory Management: It is everywhere… I can’t escape it. Version 2.0

 

Ah yes… this is another case of my focus on Inventory Management creeping into everything I do. Last time it crept up on me was while sitting in a Bagel Shop. I reflected on that in my blog posting on 9-11-09.

This time it was at home. Thinking about inventory at home is not new as I work a lot in my home office. But, this time it was different. I was thinking about household inventory (i.e. the inventory of household goods). It is not something most of us do well judging from the growing clutter.

Consider the growth of the self-storage industry. In 1995, one in twenty households used these kinds of facilities. Today, we are at one in ten households. That is a dramatic increase in an industry whose annual revenues are $20B and the average revenue per site is $300K. This is the equivalent of renting outside warehouse space!

Let’s look at a few categories:

Décor: More and more households decorate for every holiday. That means inventory and storage needs for all the lights, inflatable pumpkins, crèches, menorahs, etc., etc., etc.

Clothes: When I was growing up, we had six of us living in a four bedroom house. We had enough closet space for everyone’s everything. Now just my parents live there. Every closet is full of just their things. The same is true for my in-laws and just about everyone else I have polled. My kids have gotten married and I can see the same happening in our home. Why all the excess inventory? I am sure if any of us were to track what we wear, it would follow the Pareto Principle: we wear 20% of the clothes we inventory 80% of the time.

Consumable Household Goods: As stores have gotten bigger, so have the offerings. We can easily buy gargantuan amounts of most foods and household goods, especially at the warehouse stores. We can buy a year supply of mayonnaise, a brick of 20 to 50 AAA batteries, a cube of 20 boxes of tissues, three shrink wrapped tubes of king sized toothpaste, reams of paper, gallons of laundry detergent, and cello packs of 10 to 20 pens, pencils or markers at a time.

I could go on with examples but you get the point! Now, let’s focus on Consumable Household Goods. If we are given incentives to buy in these large quantities, then we must be aware that our inventory is going up and will turn less often. We really need to manage the inventory of these goods. This would include storage, location, and rotation given that there are finite shelf lives for some of these products. Most households do not have a good system or any system at all for this. In fact, most of the time we never really know how much of any single item we have and where it might be stored.

Take an inventory of your own house. How many batteries do you have? How many locations? How much toothpaste, bleach, boxes of cereal, etc.? Make sure you look in every nook and cranny. All but the very organized will be astonished at the levels of inventory and poor stock keeping practices.

It should not have been astonishing. Consider that most households carry 100 or so SKUs. We use no demand planning and the most rudimentary stock keeping methods. Yes, it is pure heuristics based mostly on what we can remember and see. Also, there is no quarterly reporting of household inventory. Any business operating with these principles would be a total mess as well.

Me? My household? Let me just say I never have more then 20 days coverage of cigars or wine in the house. No… it is not from drinking and smoking too much. It is from synchronizing supply with demand and not wanting to stock too much of what I consider high priced items. Now if I can only apply this success across the entire enterprise.