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Excess inventory causing stockouts?
Sounds counterintuitive? Well, that’s because it’s amongst the least understood phenomena in supply chain. Let me explain.
If a system has very high stocks of an item, the first reaction is not to produce more. It's also a fact that the inventory is rarely balanced across locations. There would be invoicing locations with extremely high stocks while some other location may be running out of stock. In such cases, if we have decided to halt production for the time being, we must carry out lateral transfers from high stock locations to low stock ones. Such an action, however, is often resisted by the Logistics team, especially if they are measured on controlling freight cost.
This set of behaviours, which looks logical to individual functions ultimately leads to stockouts. The higher the excess inventory, the more the stockouts.
The first step to improve product availability in such cases should be to bring down the level of excess inventory and maintain it at a lower level, in line with the requisite buffers.