An excellent Wall Street Journal article, "Clarity is Missing Link in Supply Chain," accentuates a point made in my favorite economics book, that inventory swings are tremendously destabilizing. Here's a stunning macroeconomic impact:
The reason for this problem is explained:
The article highlights how difficult it has become for companies to always know where their products are going. In Businomics, I emphasized the need of an upstream supplier to understand the ultimate users of the product. So the company making computer chips needs to understand how those chips are being used. One company thought their chips were going into computers, only to learn later that they were destined for electronic picture frames.
OK; it is hard to know how your product is being used. That does NOT mean it's less important to know how it's being used. You still have to understand ultimate users, at least if you want your company to survive this business cycle.
If you have a copy of Businomics on your desk, re-read pages 54-58 for a basic explanation of how de-stabilizing inventory swings are, then all of Chapter 7, "Managing Through the Business Cycle" for how to manage your own inventories.
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