Slow Moving and (Obsolete) Inventory Investment

Eli Goldratt described investment as money tied up in “the system.” Inventory, machinery, buildings and other assets and liabilities that produce materials that sit in a warehouse but do not form part of throughput. He further stated that throughput accounting seeks to maximize throughput, reduce investment and reduce operating expense. Most of us in supply chain have read The Goal and subscribe to many aspects of the theory of constraints.

In January, I had the chance to facilitate a discussion on The Impact of Supply Chain on Shareholder Value at Oracle's Modern Supply Chain Experience Executive Summit. One of the discussion streams was about the implication of migrating from traditional ERP to a cloud-based system. Most cloud applications are SaaS - or Software as a Service – which is counted as an operating expense on the books. Most traditional ERP systems were a capital-based expense and are still depreciating on the books; like slow moving and obsolete inventory – they are an investment.

The rub in the conversation came from the potential double whammy of implementation of a cloud-based application – the company is now incurring both the depreciation of the old ERP and the implementation expense and subscription fees associated with the new cloud-based solution. The rest of the conversation had to do with how to implement effectively to minimize the overlap time period. That is something which APICS is heavily involved in.

This is new ground for supply chain organizations and the scale of this dilemma is unknown. So, we thought we would conduct a simple two question survey.

1. Is your company migrating aspects of your ERP to the cloud in the next five years?

2. Have you considered the overlap of depreciation and operating expense?

You can weigh in on the industry conversation by emailing me at [email protected].

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