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 / First Quarter 2002 / Issue 26(originally published by Booz & Company)


Balance-Sheet Fix: No Orphaned Orders

Managing off-balance-sheet inventory liabilities should not be a one-time event. The tech bust created excess inventory as demand fell off faster and farther than ever experienced previously. However, more than ever before, the tech world has to pay close attention to managing supply chains to optimize inventory levels. Supply chain management is more critical in technology manufacturing for several reasons:

  • The popularity of high-tech products and specific configurations has become increasingly unpredictable. Bigger bets are required to capture the upside.
  • Outsourcing manufacturing to contract manufacturers and consignment programs shifts on-balance-sheet inventory to off-balance-sheet inventory.
  • Traditional buyer–supplier agreements can create conflicting objectives and incentives that result in financial liabilities between layers in the value chain.

The best way to avoid off-balance-sheet inventory liability is to prevent it. Focus supply chain and product management processes on running lean rather than on scaling up. The recent past rewarded manufacturers with supply chains that could scale up and phase in new products quickly. The near future will reward those who run lean supply chains that are as flexible scaling down as up.

Ed Frey, [email protected]
Ed Frey is a vice president with Booz Allen Hamilton in San Francisco. He focuses on operations strategy, manufacturing, and supply chain transformation.

Steve Nied, [email protected]
Steve Nied is a principal with Booz Allen Hamilton in Chicago. He specializes in operations and performance improvement in the telecommunications and electronics industries.

Barry Jaruzelski, [email protected]
Barry Jaruzelski is a vice president with Booz Allen Hamilton in New York. He concentrates on corporate strategy and organizational transformation for companies in the high-tech industry.
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