Coaching the Exec Set on Inventory Turns

Supply Chain Pros, C-Suite Need Help Bridging the Boardroom Divide

The new Chief Supply Chain Officer started talking inventory turns in the boardroom. She was surprised to see eyes glaze over at a term so obvious.

But is that term really obvious to the grey flannel suits in finance, accounting and sales? You know, the ones who have dominated corporate boardrooms from time immemorial?

I’ve written about business execs finally recognizing supply chains as critical to success. About how they’re bringing supply chain types to the boardroom table. And about how neither the grey flannel suits nor the supply chain pro really understand each other.

Frankly, both sides could use a bit of leadership coaching. Each side needs to speak the other’s language. Without proper coaching, these groups will talk past each other, misalign their objectives and undermine the progress companies are striving to achieve.

Us supply chain people will need to explain inventory terms, days on hand and OTIF in language even a CEO can understand.

Speaking the Boardroom’s Language

In a lot of ways, you can consider this blog Part II of “Why Cross-Cultural Coaching Is Critical.” There, I explained how cross-cultural coaching helps leaders navigate cultural norms, communication styles and business practices that vary widely across regions.

Similar cultural missteps can jeopardize smooth operations when supply chain pros enter the boardroom. Supply chain professionals are adept at navigating complex logistics. But explaining those complexities to a room of CEOs and CFOs is another matter.

Both sides need coaching to understand each other.

For instance, take OTIF – on-time in full. On the surface, it sounds straightforward: Deliver the right products on time and in full.

But the nuances can make or break an organization’s efficiency. “On time” doesn’t just mean the right day. It often refers to a precise delivery window, such as between 1 p.m. and 2 p.m. on a specific date. 2:30 p.m. is too late.

Similarly, “in full” means you delivered no more and no less than the quantity ordered.

For example, take a customer who orders 1,000 units divided equally across 10 products. You could send 100 units of nine products and 98 units of the 10th product. Most people understand that missing two units means the order isn’t “in full.”

What if you delivered 110 units of one product? I mean, they got everything they ordered, right?

Wrong. Recipients, especially businesses, do not want overages. That just means they have to store more inventory, which has a cost. So, if you send your recipient 100 each of the first nine products but 110 of the 10th product, that doesn’t count as in full.

So, unless you’re working with Walmart, which originated the term OTIF, us supply chain people have to explain that in the boardroom.

(As an aside, see my latest book, Insightful Leadership, for a detailed explanation of why Walmart’s on-time in full policy is fundamentally evil.)

Without understanding these specifics, board members might make misguided decisions. Coaching can help supply chain leaders explain such terms in a way that resonates with board members, turning technical jargon into actionable insights.

The Intricacies of Inventory Turns

Boardrooms are often divided on inventory strategy.

Sales teams push for higher inventory levels to ensure availability. Meanwhile, finance departments advocate for lower inventory to cut carrying costs and free up working capital. Supply chain leaders, caught in the middle, must balance these demands with operational realities.

This balancing act often revolves around metrics like inventory turns, short for inventory turnover ratio. This measures how often a company sells and replaces its inventory within an accounting period.

Usually, companies calculate inventory turns on an annual basis. To calculate this, you divide the cost of goods sold (COGS) by the average inventory. For example, if a company sells $60 worth of hot dogs annually and maintains an average inventory of 10 hot dogs, the turnover rate is six. This means the company replaces its inventory six times a year.

However, planners often focus on the reciprocal measure: days on hand. That metric indicates how long current inventory will last based on sales forecasts.

Calculating this involves dividing the average inventory by COGS, then multiplying by 365. In the hot dog example, the company would have about 60 days of inventory on hand (10 ÷ 60 × 365).

This duality creates a tension: Finance emphasizes higher inventory turns, but planners need accurate inventory days on hand to avoid stockouts.

Misalignment Can Be Costly

Misalignment between the board and supply chain leaders can lead to expensive mistakes.

Let’s take a board that has approved paying for software upgrades that should double your inventory turns. Let’s say they’re going to increase inventory turns from six to 10 a year. If you’re going to do that, your warehouse doesn’t need to be so big. So the board, not really understanding reality, plans budgeting, sales and inventory around the smaller warehouse.

Well, software upgrades rarely work the first time. And if you don’t select the right partner, they won’t work at all.

So, sales grow 2%. Inventory turns remain at six. The board is going to come right back at the Chief Supply Chain Officer and say, “Why did you build your warehouse too small?”

Well, the warehouse wasn’t too small for 10 inventory turns a year. But it sure as heck is too small for six inventory turns a year. With fewer inventory turns, you need to keep more inventory in stock. The more days on hand you must stock, the bigger your warehouse needs to be.

The result of that misalignment on inventory turns? Increased costs, operational bottlenecks and damaged trust between departments.

And remember, these days your inputs and raw materials face perpetual disruption. So does demand for your products. Synchronizing supply and demand requires greater flexibility.

Coaching helps supply chain leaders articulate these risks and communicate in terms the board can understand. On the other side, coaching helps the C-suite understand the realities of supply chain.

In other words, coaching can ensure that your board makes decisions grounded in operational realities.

Navigating a VUCA World

In today’s world of volatility, uncertainty, complexity and ambiguity (VUCA), perpetual disruption in supply chain is the norm.

Forecasts often miss the mark. Take another scenario, where a company expects to sell 1,000 blue shirts and 1,000 white shirts every month. Instead, they ended up selling 800 white shirts and 1,200 blue.

Board members might think that’s swell. We hit our sales numbers. Yes!!! 

The problem is we’re out of blue shirts and have too many white. You can’t ship customers white shirts when they’ve ordered blue. (Well, you can. But that causes other problems.)

Beyond that, inventory turns went down because we only sold 800 white shirts. So yes, that’s an operational problem.

Building a Collaborative Future

These days, cross-functional coaching is a necessity, not a luxury. It enables supply chain professionals to communicate effectively in the boardroom. It teaches the finance/admin types what operational reality is, from managing excess inventories to designing warehouses that align with realistic turnover rates.

By fostering mutual understanding, coaching ensures supply chain leaders aren’t “tabled but not enabled.” Instead, they become active contributors to strategic decision-making, driving resilience and agility across the organization.

Is your board having trouble understanding your infusion of supply chain knowledge? Could you use help explaining technical terms and supply chain complexity to non-supply chain board members? Reach out – I’d love to hear your stories,

The path forward is clear: Embrace coaching as a tool for collaboration, aligning supply chain expertise with the broader goals of the business. Only then can your enterprise truly thrive in an interconnected, unpredictable world.

Related Reading

• The New Era of Supply Chain Leadership: Tabled but Not Enabled
• Why Cross-Cultural Coaching Is Critical
• The Chief Supply Chain Officer vs. the COO