We are big proponents of Lean Thinking (removing waste from all processes). Waste is defined as anything which does not add value for the customer. Many companies attempt to reduce work-in-process inventory to reduce costs and waste. This is good. Many companies, especially last year, also reduce finished goods inventory to minimize cash tied up in inventory. This can be good or …
Last year John Deere reduced their finished goods inventory by 28% to the lowest level in their industry as a percentage of sales (12.3%). However, apparently not being as good at quick response, Deere is now suffering lost sales as they cannot respond to their customers’ needs in time. Farmers need equipment to harvest, and since crops won’t wait, farmers won’t either. Reminds me of the fate of Worlds of Wonder (Teddy Ruxpin) who would not believe that parents wouldn’t “move Christmas” to wait for their wonderful products.
Deere has a strong brand and strong loyalty, but they appear to be pushing it. Their inaccurate forecasts can be forgiven, but their inability to meet their customers’ needs may not be. It causes me to wonder if arrogance may have played a part in their inability to make sure if things changed, they were ready. Worlds of Wonder learned the hard way that this does not work.
Be lean, and be smart. Fast response and fast turn-around also make for a lean approach.