TOOL KIT

Despite ever more demanding retailers and rampant product proliferation, manufacturers have stayed with dangerously indiscriminate production schedules and sourcing strategies.
A new approach leaves less money on the table.

INVENTORY
IN A W O R L D

OF LEAN

I

RETAILING

by Frederick H. Abernathy, JohnT Dunlop,
Janice H. Hammond, and David Weil

|ANUFACTURERS OF CONSUMER GOODS

are in the hot seat these days. 1 n the past, retailers would place large orders at the beginning of each selling season, and factories would simply produce to order.
But the big chain stores are increasingly adopting lean retailing practices, so they're insisting that manufacturers fill orders to replenish retailers'stock on an ongoing basis. Because factories usually can't produce goods fast enough to meet these orders, manufacturers often hold large inventories for indefinite periods.

HARVARD BUSINESS REVIEW

November-December 2000

And the cost of holding these inventories is only growing. Consumers are demanding greater variety in products, and their preferences are getting harder to predict. As products proliferate and become more susceptible to changing whims,the risk grows that a given product line will have disappointing sales and have to be discounted. But if a manufacturer decides to go lean on inventories, it runs the risk of stockouts, lost sales, and endangered relationships with the chains.

TOOL KIT • Control Your Inventory in a World of Lean Retailing
It's a tough position, but a new approach can help manufacturers predict their inventory needs more accurately. Manufacturers tend to treat every stock-keeping unit within a product line the same way-but in fact, these SKUs often have very different levels of demand. By differentiating SKUs according to their actual demand patterns, you can reduce inventories on