Welcome

My dad is 92 years old. Actually, he’s 92 and a half years old as I reminded him recently. “It’s been a long time since I counted half years”, he replied to me. I think we all stop counting our half year milestones once we hit double digits. It’s amazing how quickly we transition from wishing we were older to wishing we were younger. My dad has had some recent health challenges. At his age, life provides no shortage of challenges. But his long life has also brought plenty of acquired wisdom. On this Fathers’ Day, I wanted to share just a few lessons from dad that have managed to seep into my thick skull.

“Be Careful”

Of all the lessons from dad, this has been his prime directive over the years. Whenever we depart, the last thing he tells me is “be careful” (sometimes “be safe”). This is how he tells me good-bye, no matter if I’m just going home or leaving on a long journey. While seemingly a simple piece of guidance, there is an implicit expression of love and concern that he imparts each time we depart one another’s company. I’ve tried to live by this simple mantra…some periods of my life more successfully than at others. I tell my own children the same thing whenever we bid each other adieu.

If Something is Worth Doing, it is Worth Doing Well

My father was born during the depression. I believe living through those challenging times formed much of his outlook on life. His approach to work might be described as methodical. Whether it was working at his job or while accomplishing something around the house, he took his time to get things right. The old adage “measure twice, cut once” has typified his approach. Taking the time to get things right prevents wasted money and materials that cutting corners inevitably leads to. I sometimes have to fight my natural impatience by forcing this lesson to the forefront of my approach to work. “How would my father or my grandfather approach this task?”, is a question I’ve often thought about when I feel myself slipping into a “good enough” mentality.

Problems are Just Opportunities to Succeed

As I mentioned above, I can be impatient. Life’s many little problems often create ripples in “the plan” that cause me frustration. My dad seems to almost relish the appearance of these little problems. I know he doesn’t actually do so but it certainly sometimes seems as if he does. The only certain thing in life is that uncertainty provides us with a steady stream of things to overcome. My dad embraces this reality. I like to think of him as the OG MacGyver. Something break around the house? No problem as long as you have an old hose, some bailing wire, and a potato! His example serves as a reminder that things don’t always go to plan. Why not acknowledge this fact and get busy solving the problem instead of whining about it? I constantly strive (struggle, at times) to live this lesson.

Enjoy the Simple Things in Life

Ask my dad what his favorite sandwich is and I’ll bet you he still says “butter and radish”. Not something you’re likely to find at Subway let alone at a fancy gourmet deli. I have many fond memories of the camping trips we took when I was growing up. A walk through the woods was the point of the vacation. Visiting with family and friends over a meal or cup of coffee is his idea of a perfect day. Modern life provides us with so many ways in which we can spend (waste) our time. I believe many of us can become distracted by this aspect of today’s reality. My dad has always been a role model for slowing things down, enjoying what is right right in front of him.

Nothing is More Important than Family

Many people express the idea that family is the most important thing in life. Most of us really believe it. Nobody I’ve encountered in my life exemplifies this idea to the extent that my dad does. Of all the lessons from dad, this is the one I hope to measure up to…even fractionally. My entire life, I’ve heard stories of my father’s total commitment to helping family members. I myself have been witness to so many examples that they are actually uncountable.

My father has always struck an imposing figure. He can be intimidating at times, but beneath the stern exterior beats the heart of a genuinely caring and loving man. Modern men need to understand what my dad has known his whole life: that we can simultaneously be strong and caring.

Lessons from Dad

My father and I don’t agree on everything. What two people do? However, I believe my parents raised my brother, sister, and me to be independent, caring, and open-minded humans. There many not be a better achievement as parents than sending your children out into society armed with qualities such as these.

I’m not doing justice to all that my dad has taught me over the years. I only hope that I’ve captured some of the most important lessons he has passed on to me. I want him to know that I’ve been listening and observing what he says and, more importantly, what he does. I want him to know that I appreciate all that he has given to me. I want him to know that if I am a good father, it is largely because of the example he has set.

Maybe my dad will be the only one who reads this post. That would be just fine by me. If you’re reading this and your name isn’t Bob Reed, I hope today finds you in good company and with the opportunity to send the father(s) in your life love and appreciation!

“Are you Adam?” he asked. “Yes”, I replied – “Are you Ed?” I’ll refer to this person as “Ed” to protect his anonymity. And because I can’t remember his actual name…ok, mostly because I can’t remember his actual name. The year was 1993 and I was meeting Ed in a McDonalds – a nice public place to make the transfer. After we exchanged the verbose greetings two twenty-something-year-old males might make, I pulled a binder from my briefcase (yes, I had an actual briefcase). After examining the binder’s contents, Ed produced an envelope with 15 one hundred dollar bills and counted them out for me. He asked, “Are we good?” Stuffing the envelope into my briefcase, I replied “Yeah, we’re good.”

Treasonous sale of military secrets? Illicit drug deal? Pilfering of my mom’s family recipes? Fortunately for me, this transaction had nothing to do with anything that could get me arrested or, even worse, cut off from my mom’s cooking. The binder contained sixteen plastic sheets with nine pockets in each sheet. And just what was in the pockets? A complete set of 1986-87 Fleer basketball cards. If you’re unfamiliar with the hobby (disease?) of sports card collecting, you may be asking why on God’s green earth would someone pay $1500 for that. Or maybe you’re asking if this hobby is really about collecting, investing, or gambling? Before answering these questions, I believe a brief history lesson is called for.

Tobacco, Not Chewing Gum

The first sports cards were produced in the late 1800s, and their primary purpose was to promote the sale of cigarettes. These early cards featured images of popular athletes and were included in cigarette packs as a way to entice customers. Over time, the cards became more popular than the cigarettes themselves, and a new industry was born.

In the early 1900s, companies such as American Tobacco and Piedmont began producing sports cards on a larger scale. These cards were still primarily used to promote the sale of cigarettes, but they also became popular collectibles. The cards featured images of popular athletes of the time including baseball players and boxers.

The most iconic card from this time (and likely all time) is the Honus Wagner t206 card issued by the American Tobacco Company in their 1909-1911 series. Somewhere between 50 and 60 originals are believed to remain in existence. One of them sold for $7.25 million last year…just a bit more than what I got for my cards in 1993.

Golden Age of Sports Cards

The 1930s and 1940s saw the rise of the “golden age” of sports cards. Companies such as Goudey, Play Ball, and Bowman began producing cards in large quantities, and baseball became the dominant sport featured on these cards. This era saw the introduction of the first baseball card sets, including the 1933 Goudey set, which is highly sought after by collectors even today. Incidentally, this was the first set of cards that was sold with bubble gum.

The 1950s saw the rise of Topps, which quickly became the dominant producer of sports cards. Topps introduced the first set of baseball cards in 1951 and later went on to produce sets for many other sports, including football and basketball. The 1952 Topps set is considered one of the most important in the history of sports cards, featuring the iconic Mickey Mantle rookie card.

The 1960s and ’70s saw the introduction of cards featuring athletes beyond baseball players, as well as cards featuring non-sports themes such as movies and TV shows. I still have some Star Wars cards that were produced by Topps. These came with bubble gum just like their sports card counterparts. By the way, the gum was awful and sometimes stained the cards they were packaged with!

Big Business

In the 1980s, new companies like Fleer, Donruss and Upper Deck entered the baseball card market. The competition for collectors’ money and attention intensified. Topps was no longer the only game in town for collectors. All three companies produced multiple sets per year, including “update” sets that included young up-and-coming players that were “called up” to big league clubs during the season. The pursuit to own “rookie cards” (a players first official baseball card) became extremely popular. It’s still a major driving force even in today’s hobby.

The 1980s also saw the rise of “insert” cards, which were limited edition cards featuring special designs or unique features. These cards became highly sought after by collectors and helped to increase the value of sports cards as a whole.

By the time the 1990s rolled around, the sports card industry was a full throttle money-making endeavor. Multiple companies were producing not only baseball cards, but football, hockey and basketball cards as well. During this time new types of cards were introduced, including holographic and “foil” cards. However, the market eventually became oversaturated, and the value of sports cards declined. Collectors kept on collecting but investors/gamblers likely lost more than a little money.

Modern Madness

Recently the sports card industry has seen a resurgence, driven in part by the rise of online marketplaces (like eBay). These marketplaces have made it much easier to reach potential buyers across the entire globe. Companies such as Panini and Topps have also introduced digital versions of their cards, which can be bought and traded online. Collecting non-physical cards doesn’t exactly seem right to me. But then again, I’ve only recently resigned myself to not owning physical music media.

In addition, the rise of professional card grading has had a big impact on the hobby. Sports card grading began to gain popularity in the 1990s as the sports card market started to experience a surge in interest and value. Professional Sports Authenticator (PSA) was founded in 1991 and became the first sports card grading service to use a standardized grading system. PSA’s system assigned a numerical grade from 1 to 10 based on the overall condition of the card, with 10 being the highest grade possible.

Today, sports card grading is a well-established industry with several reputable grading services available to collectors and dealers. The grading process typically involves evaluating the card’s condition, authenticity, and overall aesthetic appeal, and assigning a grade based on a standardized grading scale. Graded cards are highly sought after by collectors and can command significant premiums over ungraded cards.

The card industry has also seen a rise in very high-end, low print-run cards that include autographs and actual patches of game-worn items. When combined with professional grading, some new cards are selling for hundreds, if not thousands of dollars right out of the pack or box. As a result, some cards are achieving very high value status quickly. For example, a quick check of eBay shows a 2017 Patrick Mahomes autographed rookie card with a bid of $4,150 and rising.

$1500 for Basketball Cards…Really?

As I already mentioned above, the 1980’s saw an explosion in the number of companies that were producing baseball cards. However, this was not the case for basketball cards. In fact, there was a six year period from 1980 to 1986 during which time no major basketball cards were produced. During the same period, the NBA’s popularity was being revitalized primarily by the intense rivalry between the Magic Johnson led LA Lakers and the Larry Bird led Boston Celtics. The arrival of Michael Jordan in 1984 took the league’s popularity to even greater heights. And because of the aforementioned gap in basketball card products, Jordan’s “official” rookie card was included in the 1986-87 Fleer set. Many other top-notch players also had their rookie cards appear in this set: Charles Barkley, Hakeem Olajuwon, and Patrick Ewing to name just a few.

Sport exploding in popularity – check. Lots of popular players and key rookie cards – check. Lack of other basketball card options – check. Perceived scarcity of the print-run – check…sort of. It’s hard to track down actual print runs for card sets. What I can say is that by 1993, all of the factors I mention here resulted in me selling a set of these cards for $1500. Ed’s primary interest was certainly the Jordan rookie card. He really only looked at that card in any detail whatsoever.

Lest you think I took advantage of poor Ed, a complete set of 1986-87 Fleer basketball cards likely fetches 10-15 times what I sold my set for back in ’93. Whether Ed was motivated by collecting, investing, or gambling – I cannot say. What I do know is that the money from this sale came at an opportune time for me. It allowed me to pay my living expenses during my last semester in college. Entering the workforce debt free was a great way to start my career and plan for the future! Thanks Michael Jordan (and friends)!

Collecting, Investing, or Gambling?

My personal history with this hobby traces back to 1980. My Uncle Lee gave me my first few packs of Topps baseball cards. I still feel excited anytime I crack open a new pack of cards. The potential value of cards that might be in any given pack is undeniably part of the appeal. However, I’ve never approached this hobby as a money-making endeavor. The money I’ve made selling cards falls far, far short of what I’ve spent on cards over the years. Even including the Jordan rookie card set.

So ultimately, is this hobby about collecting, investing, or gambling? I suspect some of each. Collecting sports cards is still something I do but I’ve slowed way down over the past five years or so. It’s currently an expensive hobby to take part in. Collecting sports cards feels like a way for me to actively participate in my sports fandom. I miss the days of trading football cards at my friends house. Definitely a nostalgic memory for me of simpler times.

I know there are people who make money buying and selling sports cards. Like any venture that involves transacting an asset, the key is to buy low and sell high. That is an obvious statement but much harder to consistently execute. For anyone who is considering adding this particular asset class to your investment portfolio, do a lot of research first. After all, there are only so many Michael Jordan’s that come along in a lifetime….right?

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Written by: A Reed

Reviewed by: B Holman

Next month I’ll “celebrate” the 31st anniversary of turning 21. Thirty. One. Years. To me, that passing of time seems both fleeting and possessing of so much. In my twenties, life seemed so wide open. I couldn’t conceive of the many things I didn’t know and would learn along the way. An interesting, if self-indulgent, thought exercise is to consider the hindsight advice one might provide their younger self. Following on from my last post’s toe-dip into 90’s music nostalgia, I decided to visit the last decade of the twentieth century once again. What guidance would I give my 21-year-old self if I could travel back in time?

Assuming I quickly moved through the parts where I urged myself to load up on Apple (AAPL) stock and go large on betting the 2015/16 EPL champion would be Leicester City, I believe I’d keep my words of wisdom generic enough to avoid tearing the very fabric of space and time. Or, however that might work. Maybe the best approach would be to send back an anonymous letter? Time traveling snail mail is really the only option as e-mail wasn’t much of a thing back in 1992. Forget about DM’s, BLOGs, IG posts, tweets, FB updates, blah, blah, blah.

So, to my 21-year-old self, I hope to drop some knowledge on you!

Become more open-minded

I like to believe that I’ve become more open to different and new ideas over the years. If true, it’s likely because I’ve had the opportunity to meet people from vastly different backgrounds and not because of some spark of enlightenment. Developing a broader sense of the world through experience is invaluable in becoming a more open-minded person. I had the great opportunity to complete two 9-month co-op internships while I was in college. For both stints I worked at IBM in Rochester, MN and to say that I met and interacted with people who had different outlooks on life than me, would be an understatement. Well beyond the work experience and much needed income, the life experience of being on my own in a completely new environment and state helped me to form a wider view of the world.

To my younger self, I’d encourage him to embrace new experiences as a golden opportunity to expand views and gain understanding of the world around him.

Don’t be afraid to put yourself “out there”

As an introvert, this bit of advice would have been quite challenging but helpful over the years. “Networking” is the modern buzzword used to describe the practice of connecting with people outside of one’s current circle of acquaintances. To be honest, I used to find the term a little too transactional for my tastes. Networking felt like I was seeking out people for my personal gain. What I’ve come to realize is that connecting with people is just how society works. Human connections can be positive for all manner of reasons – forming a new friendship, identifying a mutually beneficial business opportunity, or as a learning experience.

To my younger self, I’d encourage him to not be afraid to connect with new people. The possibility of rejection or being open to criticism is minor compared to the potential goodness that comes from forging new connections and friendships. Trust your instincts, have confidence in your abilities, and be proud of who you are.

Work hard…but not too hard

Working hard is a value that was instilled within me from an early age. In many ways, the American experience is founded on the notion that anything can be accomplished if only we work hard enough. And putting forth concerted effort in pursuit of an objective will always be important. However, what I’ve discovered along my journey is that nobody will prevent you from working too hard. Technology now allows twenty-four-hour, seven-day-a-week access to work.  Learning to strike an appropriate balance between hard work and everything else is key to a long and happy life.  Humans need rejuvenation and time to strengthen bonds with family, community, nature, and one’s inner self.

To my younger self, I’d caution against working so hard that other aspects of life suffer. It’s a difficult lesson for an achievement-oriented individual to put into practice. But us humans need much more than hard work to truly be well-rounded and successful.

Take care of mental and physical health

When your twenty-one, it can be hard to envision a future with increasing stress and declining metabolism. A time in life when adding pounds comes easier than sleeping through the night. I was super active in college, playing tennis or basketball or both daily. So, it may have been hard for me to believe that my mental and physical well-being were going to be deprioritized for a long stretch of my life. Many of the challenges I faced in this aspect of life came as a result of the working too many hours. Which means this piece of guidance goes hand in hand with the previous one.

To my younger self, I’d implore him to live with better balance and resist the temptation to set aside exercise and mental rejuvenation. It is also worth mentioning that there is no shame in seeking help for mental health challenges. We seek help from medical professionals when we have concerns with our physical health. So should we seek similar help when we experience challenges with our mental health.

Saving and investing are NOT the same thing

In a previous post I suggest four key financial habits that are beneficial to young people starting their own personal financial journey. These habits are: (1) keep track of your money; (2) avoid credit card debt; (3) pay yourself first; (4) establish and maintain a financial plan. I wish I would have started to build all of these habits earlier than I did. In addition to this guidance, I’d emphasize that saving and investing are not the same thing. This bit of hindsight advice relates to the idea that simply saving money is unlikely to build enough wealth to support the bigger objectives in life (i.e. enabling family education goals, achieving early retirement, building a dream home).

To my younger self, I’d suggest that starting to invest some money early in life is the best way to unlock the power of compounding over time. Saving is important to provide security but investing is key in building wealth.

Add value

At first pass, this advice might seem to be at odds with the idea of not working too hard. However, it’s been my experience that working hard and creating value don’t always correlate with one another. If you buy into the idea that value is equal to the perceived benefit of something less the actual cost to provide that something, then perhaps you’ll agree that the creating value is more complicated than simply keeping your nose to the grindstone.

To my younger self, I’d advice him to be crystal clear about the value he should be creating in his work and life. Seek opportunities where there is a favorable convergence of aspects of ourselves and those of the world at large. Specifically, engage in things you love and are great at that also happen to be things that the world needs and rewards you for. Finding your purpose will increase the chances of creating value and happiness.

Don’t fear failure – learn from it

The American tennis player Jimmy Connors is quoted as having said “I hate to lose more than I love to win.” This pretty much sums up my philosophy as well. I have always hated to lose or disappoint or fail. It makes me feel genuinely bad. Unfortunately, having such an aversion to failure has meant that I have avoided situations where failure is a distinct possibility. This isn’t to say that I’ve never come up short. I have…many times. But as painful as it can be, the best lessons I’ve learned have come from failure (here are some interesting lessons that can come from failure).

To my younger self, don’t be afraid to try and try some more. Everyone wants to win but nobody wins all the time, in every endeavor. Losing provides the gift of experience. View failure as an opportunity to learn and grow.

What does Generation X know?

One last note. I had the opportunity to catch up with my friend and fellow GenX’er Brian this week (we actually used our phones to speak to one another). One of the topics our conversation wandered into was the difference in social pressures facing young people today. Driven predominately by technology and the invention (or sometimes curse) of social media, teenagers and young adults are inundated with information, inputs, and interactions in ways we never were. With this in mind, I’m confident that not all of what I’ve written here will completely resonate with today’s twenty-something readers (if there are any) who are navigating life in the current version of our society.

That said, if my 21-year-old self was navigating today’s world of social media and instantaneous feedback, I would suggest that other people’s opinion of him are none of his business. Don’t assign value to that which is inherently valueless.

I have shared similar lessons and ideas with my children (16, 18, 20). My hope is that they, at least, find something mildly helpful or briefly thought provoking. Organizing one’s thoughts using the written word can help convey what we intend, free of the urgency that often comes with verbal interactions. I know I’ve wished I would have said something different or additional following many a conversation.

Perhaps you might also find it meaningful to write down your own life lessons. If not for your past self, then maybe for your children, grandchildren, nieces and nephews.

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Written by: A Reed Reviewed by: B Holman

January seems like an excellent time for reflection and change. Many a New Year resolution is made (and often abandoned) within the first month of the year. The act of replacing the old calendar with a new one must trigger some long-ingrained desire in humans to periodically ponder and, hopefully, act on improvement ideas. Personally, I abandoned making New Year resolutions long ago. Creating change in my life comes down to forming or destroying habits. Grand declarations of positive intentions to change just don’t work for me. There are more than a few of my good intentions paving that road to the nether realm. This isn’t to say that I have completely forsaken the January opportunity to make at least a couple of positive changes. What’s this got to do with odds and dividends you ask?

Odds

Weary of paying for multiple music streaming services, I decided to put all my song eggs into the Spotify basket. The cool kids (my teens) have told me that this is the way so Amazon prime music is out. Speaking of kids, the thought of actually owning music media (cassette tape, CD, or vinyl record) is as foreign a concept to them as is a payphone.

It’s still remarkable to me I can search for just about any song and add it to a streaming playlist. A long way from taping songs off the radio as a kid. Don’t judge me too harshly – I know some of you did the same thing (remember all those mix tapes you made?). I’ve shared a link to one of my Spotify playlists at the end of this article. Fair warning: the songs are all from the 90’s – a decade during which I listened to many, many hours of music.

Dividends

Concurrently but separately, last month’s review of our personal finances seemed like a good time to spend time evaluating how well our money is working for us. I’m a fan of reviewing the :”state of our budget” and finances on a monthly cadence. Doing so in January affords a complete look back on the prior year. Unfortunately, 2022 was pretty terrible. One of the very few bright spots was the income that came from dividend paying stocks and ETF’s. And, I intend to further bolster investments in dividend paying instruments moving forward.

To say the market has been volatile over the past year is like saying Michael Jordan was decent at playing basketball (another shout out to the 1990’s). Long-term investing means weathering the ups and downs and to rely on the historical success of the equity markets. Why not get paid along the journey? This might be another good time to mention that I’m not a financial professional. I’m simply a Gen X’er who is only now figuring out how to use music streaming services.

So what the heck are dividends?

Dividends are a way for companies to share their profits with their owners (shareholders…you and me). When a company earns profits, they can choose to either reinvest them back into the business or distribute them to shareholders as dividends. Companies pay dividends for a variety of reasons, including to attract and retain investors, to signal financial strength, and to distribute surplus cash. Think of dividends as a way for a company to directly return value to its investors.

There are two types of dividends: cash dividends and stock dividends. A cash dividend is a payment made in cash to the shareholders, while a stock dividend is a payment made in additional shares of stock. If near-term income isn’t a priority, investors may choose to reinvest those dividend payments as a key component iof their long-term financial strategy.

Does it make sense to invest in dividend paying instruments?

Dividends can be an important part of any investment strategy because they provide a steady stream of income to investors. In addition, companies that pay dividends are often seen as financially stable and committed to returning value to their shareholders. This can make them attractive to even more investors and result in a higher stock price.

Investors who are interested in dividends should pay attention to the dividend yield, which is the annual dividend payment divided by the stock price. Dividend yield is calculated by dividing the annual dividend by the stock price. For example, if a company pays an annual dividend of $4 per share and the stock is trading at $100, the dividend yield is 4%. The higher the dividend yield, the greater the return for the investor. However, it’s important to keep in mind that a high dividend yield may also indicate that a stock is undervalued or that a company’s financial situation is weak.

Another factor to consider when investing in dividend-paying stocks is the dividend payout ratio. This is the percentage of a company’s earnings that are paid out as dividends. A high dividend payout ratio can indicate that a company is committed to paying dividends. But it can also indicate that the company is using most of its profits to pay dividends and may not have much left over for growth or investment.

Are all dividends created equal?

Not really. As is the case with any potential investment, it’s important to consider multiple factors when deciding whether to invest in dividends paying stocks or ETF’s. Some of the critical considerations include:

1. Company financials: Look for stable, profitable companies with a history of consistently paying dividends.
2. Dividend yield: Consider the dividend yield as well as the company’s dividend history while keeping in mind that a high dividend yield can indicate that the company’s stock price is underperforming.
3. Market sector: Some industries, like consumer goods, tend to have a higher dividend yield when compared to other sectors.
4. Dividend growth: Companies that consistently increase their dividends over time can provide a growing source of income for investors.

It’s also important to consider the overall health of the stock market and the economic climate, as these factors can impact the performance of individual stocks and the ability of companies to pay dividends. This has been especially important during current volatile market conditions.

Investing in dividend stocks is just one component of a well-diversified investment portfolio. It may be a good idea to consult with a financial advisor to determine the best strategy for your specific financial goals and circumstances. It’s also worth noting that dividends are taxed as ordinary income in the US.

Odds and Dividends

Investing preferences are similar to musical tastes – there are a ton of options. I feel comfortable investing in both individual dividend stocks (INTC, MSFT) and in dividend paying ETF’s (VYM, SCHD). Not all investors will find the risk/reward proposition of investing in dividend paying instruments to their liking. Just as not everyone is going to appreciate my musical tastes.

Dividends can be an important consideration for investors looking for income from their investments. Just remember, it’s important to consider the company’s financial health, dividend history, and the tax implications of the dividends before investing. As with any investment, it’s always a good idea to do your own research and consult with a financial advisor before making a decision.

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And now, please enjoy my flashback to 90’s greatness!

https://open.spotify.com/playlist/30dGDf0TPVVJcmldq0KAz9?si=3249530ae28f4720

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Written by: A. Reed Reviewed by: B. Holman

What’s the difference between seeing the Loch Ness Monster and achieving perfect inventory balance? One involves a completely unrealistic tale of lore. The other involves a large prehistoric water-dwelling creature with a long neck. Dad jokes aside, the effective management of inventory is a monumental challenge for any business that is involved in manufacturing, moving, storing, or selling physical goods. As a supply chain practitioner for the duration of my career, working with inventory was the source of much of my consternation and my fascination.

Inventory (or the lack there of) is something that touches all our lives. In many ways, Amazon has greatly reduced the impact we experience when inventory is poorly managed. Need something in a day or two? Just find it on Amazon and order away without concern over shipping costs (if you happen to be a ‘Prime’ member). Looking for something at a local store but can’t find it on their shelves? No problem, you can order it from Amazon right on your phone before you even leave the store. Above all else, Amazon is a master of distribution and inventory management. The expert supply chain folks at Amazon have insulated many consumers from the challenges that normally come with needing a particular thing at a particular time. But for manufacturers, wholesalers, distributors, and retailers, the inventory dilemma is very real and very impactful.

The Inventory Dilemma

So, what’s this inventory dilemma all about any way? Having too much inventory means a company’s working capital is tied up, not generating revenue, and likely accruing costs (storage, unnecessary processing, scrappage). Having too little inventory means that customers can’t give the company money in exchange for items they wish to purchase. This quite literally defeats the purpose of being in business in the first place. Unfortunately, many enterprises will face both too much and too little inventory at the same time. It’s a cruel fact of business. Forecasting (or educated guessing) of what future demand will be for a company’s products is really hard; and is almost never accurate at an individual item level

In the early days of the COVID-19 pandemic, hyper efficient supply chains ground to a halt as key participants were impacted by dramatic plant closures and immediate pauses in distribution channels. For example, the auto industry supply, which has been designed to leverage efficient, connected suppliers, was particularly impacted by supply chain disruptions. Ashwani Gupta, Nissan Motor Co.’s chief operating officer highlighted this reality in a recent Wall Street Journal article: “The just-in-time model is designed for supply-chain efficiencies and economies of scale,” he said . “The repercussions of an unprecedented crisis like COVID highlight the fragility of our supply-chain model.” Now, some automakers are stockpiling certain parts in an attempt to avoid especially harmful choke points.

Variability is No Joke

As with many aspects of life, the only thing certain about supply chains is that they face constant uncertainty. All businesses face both demand and supply variability. An individual customer doesn’t have precise knowledge of which products they will order in the future. Nor do they know the quantities or timeframes they’ll want those products for. Forecasts can provide a rough estimate for future orders (product mix, quantity, and timeframe) but still don’t provide an exact answer. Think about your own individual consumption patterns. If you were asked to forecast all of your purchases for next month, could you do it? You could probably come up with something if you had to. But, you likely wouldn’t appreciate being strictly bound to that forecast without any room to purchase in a way that deviated from your prior month’s estimate. Now imagine you’re an enterprise that offers hundreds (if not thousands) of different products to thousands (if not millions) of potential customers. Preparing for the right level of material purchasing, capacity, production starts, storage, and transportation is no small feat!

Speaking of preparing to support customer demand, supply variability is also a daily companion of operations. Even if a perfect demand forecast could be conjured (crystal ball? time travel?), supply chain are faced with events that are clearly not within their control. We need look no further than the COVID pandemic. While predictions of a global pandemic have been present for some time, it would be impossible to know the ways in which this particular global pandemic impacted multiple major facets of society and business. As highlighted above, hyper efficient systems don’t deal well with outlier situations. Per Merriam-Webster, a buffer is “a means or device used as a cushion against the shock of fluctuations in business or financial activity.” Reducing supply chain buffers looks good financially…only if variability is within normal ranges. The pandemic has exposed just how interdependent global supply chains really are. Highly efficient and interdependent supply chains are particularly susceptible to non-normal variability. Stockouts at a manufacturer in Asia can not only impact retail customer sales in Europe but also every stage of the supply chain in-between. Systems without buffers will feel shocks that systems with buffers will not.

What can be done?

So, is the answer to start adding buffers all over the place? Not quite. Maintaining a reasonable level of safety stock (aka buffer stock) is an accepted means of buffering against the variability that occurs in both demand and supply signals in our real world. Hopefully you agree that having too little inventory is bad for enterprises. Stockouts mean that willing and able customers are forced to find what they need elsewhere. Often, customers permanently switch from one enterprise to another when they can’t find what they need – after just a single disappointing experience. On the other hand, maintaining too much inventory can be costly, as it ties up capital that could be used elsewhere and requires storage and space. Holding the “right” level of safety stock allows a company to strike a balance between having enough inventory to meet demand, while avoiding the costs and risks associated with holding too much inventory for too long.

Supply chain conditions have started to flow more freely as the impacts of the pandemic start to subside. At the same time, there are also signs that demand is decreasing in many industries. Companies are starting to face more of the challenges associated with holding too much inventory (working capital locked up as inventory, added storage costs, unnecessary processing, and scrappage). Effectively managing safety stock has never been more important. Enterprises need not feel like they are trapped between a rock and a hard place though. Right Sized Inventory’s patented predictive analytics incorporates all of the required supply chain factors to accurately determine optimal inventory levels. Items are run through over 2,000 simulations to find the inventory level that will most effectively achieve the desired service level without excess.

Insurance Policy

Safety stock inventory is, in a way, an insurance policy. One wouldn’t likely carry a $10M umbrella policy on $1M in actual assets. However, carrying no insurance at all is quite risky because we live in a highly variable world. Variability can’t be eliminated, but it can be modeled and managed via counter measures determined through the simulations including adding safety stock in appropriate quantities and locations based on known market conditions.

Safety stock is a key component of inventory management that helps companies protect against unexpected disruptions, maintain continuity of operations, and reduce the risk of overstocking. By carefully managing their safety stock levels, companies can ensure that they have the inventory they need to meet customer demand and maintain a strong, reliable supply chain without incurring those unnecessary financial risks associated with too much inventory.  And that’s an outcome that is good for all of the bottom lines!

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Written by A Reed Reviewed by B Holman