In his famous short story "The Things They Carried", writer Tim O'Brien chronicles the travail of American soldiers in Vietnam. In a litany that's often like an inventory list, he tells us that the lieutenant carries letters, two photographs and a smooth stone from his girlfriend (who he thinks cannot possibly love him), one soldier carries extra food, another tranquilizers, another extra soap, dental floss and a toothbrush, yet another a Bible. One carries the thumb of an enemy soldier. Most of them carry a dizzying array of armaments. And ponchos. And bandages. And other necessities like
"P-38 can openers, pocket knives, heat tabs, wristwatches, dog tags, mosquito repellant, chewing gum, candy, cigarettes, salt tablets, packs of Kool-Aid, lighters, matches, sewing kits, Military Payment Certificates, C rations",
and on and on.
In the story, these things, all of this physicality, are metaphor for all the other things they carried as well. They carried silent awe at the power they held in their hands. They carried dignity - for the most part - but sometimes they carried panic and did what soldiers sometimes do when they face the prospect of violent death - sobbed and begged for the noise to stop, made promises to themselves and to God, and to mothers and fathers, praying and hoping not to die. When the threat was over, if they survived, they carried a kind of posing - a wistful resignation, pride, or a soldierly discipline - because the thing they were more afraid of than death was to actually show their fear.
"They carried all the emotional baggage of men who might die. Grief, terror, love, longing - these were intangibles, but the intangibles had their own mass and specific gravity, they had tangible weight. They carried shameful memories. They carried the common secret of cowardice barely restrained, the instinct to run or freeze or hide, and in many respects this was the heaviest burden of all, for it could not be put down, it required perfect balance and perfect posture. They carried their reputations..."
Sometimes they carried diseases. Sometimes, as good soldiers often do, they carried each other.
Now perhaps, constant reader, you are asking how this is going to apply to the Supply Chain industry. Well, thank you for asking.
We've been having some very interesting discussions with several different parties about inventory carrying costs lately. Something that's been pretty striking to me in these discussions is how most businesses today that look at this use 'standard' values for calculating these costs, and, of course, I always wonder why this is the case.
We're taught in industry texts that it's important to take ordering costs into account - things like order processing, third party logistics, receipt processing, inbound inspection, putaway, accounting resolution, and 'instanced' freight costs (did I forget a P-38 can opener?) - to consider when optimizing inventory levels.
We're taught to take - in relationship to ordering costs - carrying costs into account - things like the cost of capital, inventory taxes, inventory insurance, storage costs, obsolescence, counting and transfer labor costs, and the risks of damage, theft, or spoilage (do we need any matches?) - as well.
What we're discovering is, if a company even takes it into account, that a 'standard' value, such as 25% annualized is used as a carrying cost figure. And it's justified in a global context of "10-12 turns a year, a couple of points a month", just the cost of doing business.
But, on investigation, time after time, we're discovering that the real number isn't 25% - it's 50% or 60%, and the net turns aren't 10 or 12 - because, for example, that's just the turns for 8% of the items. Inventory accuracy is sometimes so poor that the inaccuracy number has to be added in to the carrying costs because inventory levels have to be higher than the inaccuracy to achieve reasonable customer service.
If, as Peter Drucker once penned, "American industry defies generalization" is true, why do companies accept generalized values to use for such a precious corporate resource? Why don't they want to know the exact carrying cost for each SKU? Why aren't they all committed to holy grail numbers for inventory accuracy?
Most of us these days are at some distance from the fog of war. But, if we are participating in commerce, in some way, we are still waging battle. We may think that we are carrying roasted coffee beans, chew toys for the dogs, heart stints for defective tickers, replacement parts for the vacuum cleaners, power supplies for jets, argon for inert gas welds, or chemical compounds for pharmaceutical formulation (like some of our customers do).
But are we really carrying the future of our company? Are we really carrying our stakeholder's or shareholder's value? Are we really carrying our children's or grandchildren's education? Are we really carrying our corporate agility to act on an opportunity?
Even further, are we carrying a lack of confidence in our execution? Are we carrying an inability to coordinate effectively between business system and operations? Are we carrying the shame of losing customers because we aren't serving them in the way we'd like to?
Only a couple of years ago, when we'd show a carrying cost analysis to a CFO they'd say something like "Well, you're just talking about turning inventory into cash..." as if such things were just interchangeably identical. Now when they say "You're talking about turning inventory into cash!" it's like a strike in the Klondike.
We know that accessing what you're really carrying - making it available to use - is a challenge. It's not accomplished by just ordering less stuff. It requires a passion, a commitment, a focus on efficiency, accuracy, execution, and confidence that allows you to escape the fear, cease the posing, and experience the freedom that results from millions of dollars being freed from being carried.
Yes, we make tools to help you do this. But we also pack up our rucksacks each day here at Intek to carry all the right stuff to the marketplace. Because our passion is helping companies like yours carry only what you need to.
Do you know what it is that your company is really carrying?
