9.2 Opening Story: The Art of Slicing Cheese

As Adriana left the conference room, vanilla hazelnut espresso in hand, David sat quickly at the conference table. What was his next move? There was always a little tension on the planning teams. After all, tradeoffs lurked behind almost every decision. Delivering to customer commitments often required sacrifice—by someone! He hadn't, however, been aware of the heightened tension. He was grateful Adriana had chosen to take the initiative to talk with him.

Now really wasn't the time for a battle with finance over inventory turns. He looked at the table Adrianna had given him. Six turns per year wasn't that bad. Adriana had said Olympus would be closer to General Mills 7.1 turns by early next spring. David knew finance was always focused on making the numbers. Even so, he wondered what was behind this new push to tighten inventories.

David refocused and turned to the two-question mental checklist he had adopted to help him tackle unpleasant surprises:

• Do I need to do something with this information now—or can it wait? He hesitated for just a moment. Now! The timing wasn't convenient, but a bad, short-term decision that caused another dropped baton wouldn't be good for anyone. And, defusing the tension and getting everyone back on the same page might take some time.

• Can I do this myself—or do I need help? David so wanted to handle this himself. But, would that be smart? He asked himself outloud, "What is the source of the problem?" It's not just the planning team dynamics. David whispered, "The real root cause is Tim Purstrings' mandate."

As David voiced this final thought, he pulled out his iPhone to text Emily: "Need some quick advice. Do you have a few minutes?" Before David could grab a cappuccino, Emily replied: "Come by at 10:15. I'm open for 10 minutes."

"Hi, Emily," David said as he knocked at her door. "Thanks for freeing up a couple of minutes to meet with me."

"Come in, David," Emily replied. "I have a hard break at 10:30. What's on your mind?"

"Have you heard about Tim Purstrings' inventory mandate? It's causing real friction on the fulfillment planning teams." David queried as he handed Emily the inventory table Adriana had given him. "Finance isn't happy with where we sit vis-à-vis rivals. The finance analysts on the fulfillment teams have been pushing hard to reduce our inventory levels. I'm afraid finance's push to eliminate inventory is going to trip up our efforts to improve our fulfillment capabilities."

"No, David, I haven't heard anything about this." Emily smiled. "But, it really isn't very surprising. Tell me a little more about the friction on the planning teams."

"Adriana Mackley, an inventory analyst on the Kroger and Wegman's accounts brought this to my attention. She says the tension has been building for the last six months. Just last week, Tim Purstring's issued his mandate to cut more inventory—and do it now! Adriana doesn't think we can run any leaner without jeopardizing delivery. The attitude of the finance analysts has riled up other members of the teams." David paused to take a breath and then continued, "Don't the finance guys know why we need inventory? Inventory isn't just a line on the balance sheet. Sometimes inventory is the only insurance we have against the unexpected—you know, a late supplier delivery or a spike in customer demand."

"Well, David, your tone suggests you share the planning teams' pain." Emily said empathetically. "Let me make a couple of quick points. First, don't forget the old saying, ‘You can never slice cheese so thinly that it has only one side.' Even so, Adriana does good work. So, let's just assume she's sharing the real skinny. Second, it's possible that the finance guys don't fully comprehend why we hold as much inventory as we do. If that's the case, whose fault is it?" Emily paused, but didn't wait for David to answer. "David, how would you feel if we take a two-pronged approach?"

"I see you've already formulated an action plan. What are you thinking?" David responded.

"I'm on a flight this afternoon. But, I'll be back tomorrow night. I'll try to get in with Tim for a few minutes on Friday—or early next week at the latest. I'll find out what he's thinking and see how we can support his goals. Maybe there's something we can do that won't jeopardize our efforts to improve delivery," Emily paused, smiling. "You can do a little training. I'll schedule a time for you to get with all of the Olympus fulfillment teams. First, figure out what your story is. Inventory as insurance against the uncertain sounds pretty good to me. Then, pull the numbers together to help everyone understand why we hold inventory. What are the real costs of having—or not having—inventory? Justify why we should be willing to buy insurance? Ask Adriana and a couple of the other sharp inventory analysts for help on this. Of course, while you're at it, you can verify that we are using the right models. Pick the fulfillment teams' brains for suggestions to improve our inventory efficiency. If you come up with any great ideas, I'd be happy to share them with Tim. How much time do you need to get ready?"

David said, "Sounds like a good one-two punch. As for timing, let me talk to Adriana. She's the expert. I'll get back to you by Friday. Hey, it's only 10:25. We beat the clock. Safe travels."

1. What do you think of David's mental checklist? Why are these two good questions to ask?

2. Why does David compare inventory to insurance? Specifically, what does it insure against? What are the relevant costs that you should evaluate in deciding how much inventory to hold?

3. Evaluate Emily's two-pronged approach. What do you like? What suggestions do you have to help her and David defuse tension and make better inventory-related decisions?