Dealing With Schrödinger’s Inventory

Dealing with Schrödingers InventoryBack in the 1990s, when the comic strip “Dilbert” was still funny, there was one where the manager said, “I’ve been saying for years that ’employees are our most valuable asset.’ It turns out I was wrong. Money is our most valuable asset. Employees are ninth.” (Eighth was “carbon paper,” which gives you a clue how old this joke was). Also included somewhere on that list is inventory. But inventory is a special case — it’s not just an asset. It’s also a liability.

At the risk of sounding too clever for my own good, think of inventory as Schrodinger’s Cat: it’s both an asset and a liability and is one or the other depending on when you look at it. On paper, at least, the process is simple: buy inventory, sell inventory, reorder inventory then repeat. The profit margin earned on the inventory you sold goes towards all your other expenses and, ideally, net profit. In reality, however, there are multiple ways in which your inventory can work against you and your goals and end up being a liability.

One way is shrinkage, which is when you either don’t know what inventory you have, where it is or both. Equally problematic (and what I’m going to focus on here) is when the inventory you have is not the inventory you need. How do you know it’s not what you need? Simple: no one wants to buy it. The window on when inventory is sellable or not can be alarmingly brief. That doesn’t just apply to the produce buyers for supermarket chains; it applies to all of us who work with technology.

There was a time long ago when I made a living selling CRT TVs, VCRs and 8mm camcorders. At the time, demand was high. Today, demand for those specific products is … not high. The window now on what’s hot and what’s not can sometimes be measured in weeks or months. So how do you manage that?

Staying on top of what inventory you have is the job of the inventory management systems you have in place. But keeping tabs on what’s in demand and what’s not needs to be overseen by people who have expertise and experience. There are plenty of instances where over-reliance on inaccurate systems has done serious damage. Big-box retailer Target’s failed expansion into Canada was dissected repeatedly in the business media (they lasted two years and one month before being forced to withdraw), and one of the major contributors to their failure was that their inventory system was completely wrong. Not just once or twice, but all the time.

Here’s a smaller but no less disastrous example: there’s a chain of used book stores in my city that’s old and beloved of us locals. A couple of years ago, the owners paid for some customized inventory software that, among tracking what titles they had on hand and other things, was supposed to tell the hourly staff what books they could buy from customers and how much they could offer for cash or trade.

Except that (of course) the algorithms failed. Before the owners caught the problem, they owned 5000 copies of Stephen King’s “Christine,” and that’s just one title. There were dozens of others. It was, to quote one of the people involved in cleaning it up, “a total schnozzle.”

The reality is that while inventory management systems are valuable, they can’t replace the input from humans who understand the business. The system can inform us with data, but (assuming the data is accurate) decisions needs to be made by people.

That’s why a large part of my workday is spent on calls and video meetings with the inventory managers on my dealer roster. I give my input and counsel to help them make better decisions managing their on-hand inventory and their forecasts. I contribute my insight because two heads are better than one. There’s no such thing as a “turnkey solution” — you still have to actively make decisions.

It was once said to me that every dealer runs the risk of slowly turning into what they call “a Museum of the Unsellable.” I’ve certainly seen it happen, but it doesn’t have to be inevitable.