While most people say that initial rounds of inventory reduction were probably a good thing, bringing on-hand inventories more inline with demand, the question always was how far will it go and for how long.
Recent reports - including the results of the Baird Industrial Distribution Survey - say destocking may be coming to an end in the last half of this year. While that may have some positive implications for sales, the end of destocking likely will not be the magic bullet to ramping up stalled factories soon.
Why? According to the Baird Survey, in the second quarter: "Inventory levels continue to decline with no restock expected in the near-term. Nearly 7 out of 10 distributors continued to reduce levels during the quarter; more than half expect to maintain current levels during the third quarter." The survey results go on to say distributors are more hesitant about upping their inventory levels while the future remains so murky.
It's not really surprising: The economy just provided a big incentive for distributors tobecome lean and enforced the idea in manufacturing. In a recent investor call, 3M CEO George Buckley talked about how the diversified manufacturer is restructuring its plants to do more with less, while keeping the flexibility to meet "x-factor" demands such as those that came up during the H1N1 virus.
With inventory levels at new lows, now may be the time to implement policies that keep your company efficient and adaptable to economic conditions while maintaining the levels of service your customers are used to.
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