Layoffs & disaster

The three most important metrics any company has:

These 3 critical metrics are:

1.     Throughput – the rate which the company generates money through sales.

2.     Inventory – all the money in the system invested in things it intends to sell.

3.     Operational expense – money the system spends in order to turn inventory into sales.

Consider the following:

Layoffs continue to abound in the labor market.  Buzzfeed, Lyft, Whole Foods, Amazon, Google, and Meta have all gone through multiple rounds of layoffs.  Layoffs can be necessary at times; however, these layoffs are frequently viewed as their only recourse. 

Try asking any of the companies the following questions after layoffs:

Did they increase throughput?  Were they able to sell one more unit?

-The answer is no.  Throughput for these companies will go down, and this means they are going to make less money.

Did they reduce inventory?

-No, inventory is going through the roof.  Across all industries, inventories are growing at alarming rates.

Did they reduce operational expense?

-No!  They may shed some of their operational expense through layoffs; but, they are adding significantly to the carrying costs of their growing inventory collection; which increases operational expense.

These companies are trying to trim capacity precisely to market demand, which is an accomplishment no company has ever reached.  When capacity is trimmed precisely to market demand: throughput goes down, inventories go through the roof, and operational expense takes off in growth.  This is the cataclysmic combination that so many American companies are managing themselves into, while believing they are avoiding it.

An effective inventory strategy, with the right KPIs, can lead a company to safe waters in turbulent times.  A properly leveraged inventory strategy increases throughput, while reducing inventory and operational expense.  It’s not hard, and with the right coaching it can be accomplished in a matter of months.