Technical Eyes Wide Shut

Calculating, or just approximating, the optimum inventory level is a hard task made easier by today's technology. But do we use it?

Technical Eyes Wide Shut

It seems that some lessons must still be learned the hard way. The latest students are several high-tech companies. This could be a case of myopia, but the lesson is that technology does not do 100 percent of the work for you.

The technology in question is inventory control software. Developers of these programs have made great strides in how well the software manages and forecasts inventory levels. But, even with the most sophisticated inventory control and forecasting programs, you can still lose control of your inventory. Just ask Cisco Systems, PMC-Sierra, Altera and others mentioned in a recent USA Today article.

Inaccurate forecasts resulted in too much inventory, which will likely take months to sell. These companies now must lay off employees, temporarily shut down manufacturing operations and take write-offs (in some cases of billions of dollars) to deal with the problem.

The high-tech products will no doubt be sold at bargain-basement prices, good for some consumers and some in the networking business, but a productivity waste.

Thanks to technology, companies have less and less wiggle room, or margin for error, before mistakes reap harsh consequences, in both human and financial terms. It’s not good for the average worker, who is laid off as a result of mistakes. And it’s not good for companies looking for financial commitments from investors.

The weakest link in these wonderful programs is not the technology behind them. It continues to be human error; in this case, human judgment.

As software programs exhibit greater capability, it becomes easy to rely solely on them. This kind of reliance is laziness. Regardless of how powerful the program, you can make mistakes. You know what they are subconsciously, but total recall often comes after the blunder is made.

Remember GIGO? Garbage in equals garbage out. The USA Today article mentioned that the in-trouble high-tech companies received some of their forecast information from brand-new companies on the cutting edge of their industry and development. Fine, but these companies often don’t have the same high-caliber forecasting and marketing analysis tools as the high-tech, more established members of the supply chain. Data accuracy is paramount. Ask any material handling engineer or manager.

And then there’s the human tendency to believe that good times will last forever. Any change is just a blip and will soon correct itself. Financial analysts have been warning for years that the market will turn bearish. In the fourth quarter of 2000, it did. People stopped spending. But production continued.

Increasingly, manufacturers have the ability to alter production levels quickly. But will we make use of that ability when data indicate?

Another common mistake is not listening. It’s the end of the year, and many of your customers are saying they’ll cut back on spending. But they say that every year. So, should you listen? The high-tech companies didn’t.

And, of course, there are the numbers from the field sales staff. GIGO, optimism and listening all apply here.

The inventory control programs coming out are truly powerful tools that will help you run your business better. But managers must do their part to master that independent variable — human behavior.

Leslie Langnau

senior technical editor

[email protected]

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