Supply & Demand is Backwards
Is Inventory an Asset…or an Albatross? When I worked for a Nike subsidiary, we would hear the CFO lament about the warehouse in Japan that "was visible from space”. He was a finance guy focused on one thing: Return on Invested Capital. What ties up the most cash in manufacturing companies? Nike’s latest financials showed $6.7b inventory on the balance sheet. In my experience, companies love to buy more product. You will always get support from the sales group - “Can’t sell what we don’t have!” Production is all in. That's fine if you need to bulk up on staple product with steady demand. But what percentage of your business does that cover? Are you depending on that to hit the growth targets? The stuff in the warehouse is not really an asset; it’s a bet on future demand. But these chips often accumulate over time because other games are afoot: The supplier offered a great price based on upping the quantities; Your own factory needed to fill production capacity; On...