Can You Compare Employees to Inventory?

I won’t discuss this from a moral point of view. I pose this question because I try to provoke new thoughts on lean and foresighted people management.

A Little Theory (bear with me)

A Warehouse with Inventory

A Warehouse with Inventory

Why does a retailer need inventory? To reduce the lead time from the order until the product has reached the customer. You don’t want to wait for the cow to be milked when you go out to buy a yoghurt.

Since inventory invokes costs such as space, management, raw materials, you will want to have an inventory that is always as low as possible. But at the same time not too low because else the customer would need to wait for too long and switch to your competitor. 

The Similarities of Employees and Inventory

At my university, we had a discussion that a mere service provider does not have any inventory costs. In a physical sense – that’s true. But the amount of people you have at any specific point of time has similar characteristics to the amount of inventory:

  • You shouldn’t have too few because you would have customers waiting for outcomes. You shouldn’t have too many due to the costs. You see a similar fluctuation during times of recession in professional service agencies and manufacturers.
  • Better employees deliver a unit of output faster to the customer (those are the closer warehouses), worse or newer employees need more time to deliver a unit of output to the customer (warehouses farther away). The more central a warehouse is located (the better an employee), the more expensive.
  • You can either store the inventory yourself (full-time employees) or you have a supplier who stores it for you (contractors). The first means more bound capital but at the same time it’s reliable and you know exactly what you got and what quality you sell. Secondly, you don’t have a risk of losing your customer to your supplier.

The Difference: Storage Time Improves the Product

The main difference, however, is that physical inventory can not improve while it is being stored. Free time of employees that can’t be billed to a project can be used more effectively – such as the 20% rule of Google. You can improve the knowledge or the creative output of the employee. He will become more productive. 

The down side is that the best employees will most probably be always be fully booked, and thus, can not increase their knowledge since they don’t have any free time to do so. Here’s the difference to the before mentioned Google approach: Google’s rule holds up irrespective of the amount of work that needs to be done. And they have made quite a nice PR effect with that story – even increased their sales due to innovation. While lean people management seems more cost effective in the short-term since you try to reduce non-billable time (see my share price idea in an earlier blog post), the contrary (investing in your core competency: knowledge) may increase the amount of sales and enhance your innovation potential and your image.

Concluding, one can say that the every-day management of an employees time (resource management) is equally as important as inventory management is to retailers. Professional service agencies have the advantage over retailers, however, that storage times can be well used with the product improving.

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3 Comments

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3 responses to “Can You Compare Employees to Inventory?

  1. Chris,

    The analogy is not particularly useful, but it is amusing. However, there is a people issue that is very worthwhile to understand.

    People have a huge amount of creativity, innovation, productivity, motivation, and commitment, all of which management can choose to take advantage of or not. Most managements don’t even realize that there is a choice to make.

    The difference between turning off this huge potential and turning it on is about 500% per person in terms of productivity. Unfortunately, most managements choose to use the traditional top-down command and control approach to managing people, an approach which turns off most of this huge potential. Choosing the opposite approach, that of bottom-up, turns on most if not all of this huge potential.

    I proved the existence of both cases in my 30+ years of managing people. Besides, choosing the bottom-up approach created a workforce with very high morale who literally loved to come to work.

    Best regards, Ben

  2. capdiver

    Hi Ben,
    thanks a lot for your thoughts and insight. Of course, this comparison has not really been a serious one, but you saw that.
    I had previously not thought about the free time actually being a potential bottom-up time. That’s a very nice perspective you brought into that.
    Sincerely, Gero

  3. It’s a good article, but there are some basic differences:

    – Inventories don’t get sick
    – Inventories don’t have internal conflicts
    – Inventories don’t ask for a raise (you might be able to find a better price), and they are easily replaceable

    I’m sure there are many others, and the above might be debatable metaphorically, but it’s a start

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