Michael Watson Ph.D
May 26th, 2015

Several years ago, I worked on a technical inventory optimization project for a $1.5B consumer products company.  The CEO of this firm attended a few of the technical meetings where we were talking about things like lead-time variability and the forecast errors.  I asked him why he was so interested in this inventory project.

His reply was that he liked to focus on inventory because it touched so many aspects of the business. The obvious ones were cost, tied up working capital, and sales.  But, just as important, he said, was that inventory touched so many different processes within an organization.  By analyzing inventory, he could understand which processes in his company were working well and which ones needed help.

I recently ran across an article in Fortune on Ford’s inventory management system for their dealers that reminded me of the above conversation.

Ford’s inventory management system was about more than just optimizing inventory.  It was also about allowing Ford to forge closer bonds with dealers, and it was about presenting dealers with predictive analytics capabilities.  For example, it was about helping the dealers predict the what types of vehicles would sell and what type of options would sell well together.  For example, they found that the trailer-towing package and load-leveling suspension sold poorly by themselves, but much better when on the same vehicle.

All combined, Ford credit’s the system with bringing $100 million of value per year.

Inventory systems can have a a big impact on an organization.