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Supply Chain Graphic of the Week: Are Inventories Really Growing?


Despite Anecdotes about Companies Abandoning Lead Inventory Practices, the Data Tells a Different Tale


June 17, 2021

There have been a number of news stories really since not long after the virus pandemic broke in China and then in the US and other nations about the resulting supply chain disruptions and how they were causing companies to rethink "Lean" practices relative to inventories.


Those stories continue on even today, with anecdotes about some companies upping safety stock levels for both parts and finish goods to provide more cushion in an environment of shotages and late deliveries.


One question SCDigest has: will it last? Or maybe the better question: is it happening at all?


Below is a chart from the St. Louis Federal Reserve Bank on the US inventory-to-sales ratio, calculated by dividing total US business inventories by one month of total business sales:



As can be seen, the ITS spiked during the first couple of months of the virus outbreak in March 2020, not as the result of bulking up on inventories, but rather a overall drop in sales, making the denominator part of the ITS much lower, sending the measure higher.


But since then, it's been nothing but down, down, down - such that the ITS IS below 2010 levels, and seemingly headed still lower.


There may be some companies adding inventory to reduce risk - but overall, the numbers say something else.


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