Inventory Management Pays Off, Mostly

The goal of the study was to measure how successful U.S. companies have been in improving inventory turnover rates during the 23 years between 1979 and 2001, a time when companies invested billions of dollars to improve their inventory management systems. "Everyone assumes that these substantial investments have paid off generously in efficiency gains and increased inventory turnover," says Leonard Sahling, first VP of the ProLogis Research Group. "This study reveals which inventories and which industries have experienced improvement."

The authors of the report divided the U.S. economy into 14 industries and then focused on three different types ofinventories--raw materials, work-in-process, and finished-goods--that comprise total business inventories. Key Findings of report include:

• Large investments in supply chain management appear to havepaid off. The study's findings reveal statistically significant upward trends in the number of turns of total inventories in nine of the 14 industries. • The results for finished-goods inventories, however, were anomalous. Only four of the 14 industries--apparel, building supplies, food products and medical products--exhibited clear-cut improvements in their turnover of finished-goods inventories.

• Companies generally have had much more success in improving the turnover of their raw materials andwork-in-process inventories. The report also concludes that U.S. companies have been either unable or unwilling to manage their finished goods inventories more efficiently. Indeed, in 10 of the 14 industries analyzed in their study, Professors Ginter and LaLonde found either no trend or a statistically significant downward trend in the turns of finished goods inventories.