Why Inventory Keeps Disappointing - And What Actually Fixes It

 

Earlier I wrote an article titled  "Inventory is the largest capital allocation most companies never govern". I argued that inventory is not managed by planners but allocated by a decision system whose logic is rarely understood or governed. For leadership, that insight changes the problem definition entirely. Persistent inventory failures and bi-modal swings is not an execution issue. It is a failure to govern a capital-allocating system. Here I want to point to a possible solution.

The bigbyte Operations Canon, a codified operating platform for scalable industry performance, was built specifically to address this problem. We call it the Operations Canon because a canon replaces implicit judgment with explicit, governed decision rules.

The Canon starts from a simple but often ignored premise: inventory behavior is produced by decision rules operating inside feedback loops. Those rules determine when inventory (capital) is committed, how much is committed, and how long it remains exposed. If those rules are implicit, fragmented, or contradictory, no amount of operational effort will produce the expected outcomes.

Most organizations manage inventory outcomes, not inventory decisions. They review KPIs, debate forecast accuracy, approve parameter changes, and react to shortages or excess. What they do not manage is the rule set that drives those outcomes. Over time, the rule set is effectively ‘designed by accident’ through ERP configuration, local optimizations, emergency overrides, and organizational pressure. The result is a system that allocates capital continuously without clear ownership.

The Canon addresses this by managing decision logic rather than leaving it embedded in systems and habits.

At the Canon level, inventory is governed through explicit decision rules that are separated from execution. The rules that trigger replenishment, size orders, absorb variability, and escalate exceptions are documented, testable, and intentionally designed. Planners no longer “make inventory decisions” in real time; they execute a governed system and manage true exceptions. This reduces noise, shortens reaction cycles, and restores trust in the planning environment.

Equally important, the Canon organizes inventory management into closed control loops rather than disconnected settings. Replenishment, capacity, segmentation, and exception handling are treated as interdependent loops with defined objectives, control variables, and feedback. This is critical at the executive level, because it turns inventory from a black box into a system whose behavior can be explained, anticipated, and adjusted deliberately.

The Canon also resolves a long-standing accountability problem. In most organizations, inventory sits between functions. Finance measures it, operations reacts to it, IT maintains the system, and planners absorb the consequences. In the Canon, this ambiguity is removed. Leadership owns the quality of the decision rules that allocate capital. Operations owns execution against those rules. Finance governs capital exposure and risk tolerance. IT enables the platform but does not define economic behavior. Accountability moves upstream, to where leverage actually exists.

When companies adopt this model, inventory performance changes in a predictable way. Service stabilizes without constant expediting. Excess inventory is reduced without triggering the next shortage cycle. Firefighting declines because exceptions are no longer structural. Most importantly, inventory stops surprising management. Outcomes align with intent because intent is encoded explicitly in the system.

This is not a new methodology and not a replacement for existing tools. Forecasting approaches, buffer concepts, and algorithms remain useful, but they operate inside a governed canon rather than competing for ideological dominance. The Canon neutralizes methodology debates by elevating the conversation to system design and decision governance.