For Manufacturers, a Little Inventory is Healthy

It turns out that too much efficiency is inefficient.

It turns out that too much efficiency is inefficient.
That was the finding of this study by researchers from the University of Toledo and McGill University in Quebec. The study looked at the relationships between manufacturing businesses’ financial performance, inventory levels, production efficiency and various other factors to conclude that the very leanest manufacturers, in terms of the resources they carried, were not necessarily the most successful. Inventory delivers value. In particular, that value relates to the ability to respond to unexpected shocks.
Weight loss provides an analogy. Many people are overweight, but not everyone needs to lose weight. Having too little fat leaves the body vulnerable and unstable.

In the same way, while many U.S. manufacturers could stand to become more resource-efficient, that doesn’t mean the pursuit of leaner resource levels ought to continue indefinitely at every company. There is some healthy level of inventory, the study would argue—a healthy level of “fat,” if you will—that gives the company more freedom to respond to the rare (but inevitable) dramatic turn of events.