“The more inventory a company has, the less likely they will have what they need.”
The Temptation of Over-inventory:
As dangerous a waste that over-inventory is, most business owners have fallen victim to it. Saving 15% when buying in bulk is a siren song that puts visions of high markups in our heads. But as we’ve learned, that’s not reality.
Usually, the extra good sit, and sit, and sit. We pay to store them, saturate our market with them, and then put them on sale to clear them out. 15% in savings is gobbled up by 50% markdowns and waste.
In business, buying or producing small amounts, frequently, tends to be the most profitable. We pay more on the front-end, but keep control and save more in the long run.
Over-Inventory at Home:
Shop at Costco? The lure of buying groceries in bulk brings as much waste as producing widgets in bulk. A new study from the University of Arizona confirms that shopping frequently costs consumers less by resulting in far less waste than buying bulk.
Our retail economy is built on people buying more than they need. If you’re in retail, you probably rely on that behaviour for revenue even as you’re cautious with it in your own business.
Buying 6 litres of milk reassures us that we won’t have to buy anymore for a while. It also means we’ll be pouring 3 litres down the drain in a week.
Over-inventory is as expensive as it is comfortable. Lean methodology teaches us that staying close to the rocks, and only carrying as much inventory as is necessary, is the path to profitability.
At home, staying close to the rocks means buying 2 litres of milk at a time, running out sometimes, and never pouring spoiled milk down the sink.
Staying Close to the Rocks:
The next time you’re in Costco or anywhere else, remember that their business model is based upon consumers falling prey to over inventory. Interrogate yourself about what you really need to buy.
You spend your days at work eliminating waste from your company. Spend your evenings and weekend eliminating it from your personal life, and you’ll save money in both.