In business school, I remember learning about "just-in-time" inventory management, a process that Ford Motor Company (NYSE:F) founder Henry Ford described using in the 1920s and that automakers such as Toyota (NYSE:TM) use today. (Toyota reportedly learned about it from Piggly Wiggly supermarkets.) The idea is that instead of stocking warehouses with lots of needed supplies, perhaps many days' or weeks' or even months' worth, a company stores only what it will need in the immediate future. To pull this off, it needs effective systems for tracking the consumption of supplies.
Many companies use this approach. Heelys (NASDAQ:HLYS), for example, recently credited just-in-time processes for part of its gross-margin improvement. Meanwhile, Boeing (NYSE:BA) and OfficeMax (NYSE:OMX) are finding limits to its usefulness. OfficeMax delivers office supplies to Boeing in a just-in-time fashion, but the practice is proving somewhat wasteful, due to fuel and packaging costs.
Just in time for us
All that is fine and good, but I hadn't thought about how it might apply to my personal life (and yours!) until recently. I was noticing that a bottle of vitamins on my desk was getting low. I would need to crack open a new bottle soon. (Did you know that you can now buy gummy vitamins?) Fortunately, I comforted myself, I had such a bottle, waiting downstairs.
Then I thought about how sensible I am, keeping good-sized supplies of staples on hand. I patted myself on my back for my 12-packs of toilet paper, my extra ream of printer paper, my extra cartons of soda cans, my year's supply of shampoo. I started thinking about the cost of these items, though, and I quickly realized that I may have $1,000 worth of supplies-in-waiting in my home. Maybe I'm not so smart!
If I switched to buying what I need when I actually need it, I could invest that $1,000 and in 25 years at 10%, it would grow to more than $10,000. All that from trimming my inventory. How's your own inventory?
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Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. Try our investing newsletters free for 30 days. The Motley Fool is Fools writing for Fools.