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Guest Post: How Much Inventory is There in the World?

May 12, 2013

kelly thomasToday’s Guest Post comes from Kelly Thomas, who is a supply chain management professional and executive at JDA Software.

Here is a simple question: “how much inventory is in the world?”  The short answer is that no one knows for sure, and no one keeps track of it at a global level. It’s an interesting question though, because it gives us an understanding of how efficient the world is in turning inventory into economic output.

The Council of Supply Chain Management Professional’s annual report leverages data from the Bureau of Economic Affairs and other sources, and provides great detail on logistics, distribution, and inventory costs in the U.S. According to this report, there was $2.2 trillion in business inventory in the U.S. in 2012. Also last year, there was about $70T worth of economic output globally. The U.S. represented approximately 22% of overall output. Assuming the rest of the world is as efficient as the U.S., a simple pro-rata calculation based on economic output produces a global inventory level of $2.2T/22% = $10T.

This calculation does not account for the relative efficiency of economic activity across countries. China, for example, has twice the logistics costs of the U.S. as a percentage of economic activity or GDP. Given that the combined GDP of the BRIC countries is almost the size of the U.S. economy, and if you assume all of the BRIC countries have logistics costs similar to that of China, this would add almost another $2T to the overall inventory number, yielding $12T in global inventory. This likely understates the actual number since it also does not account for relative inefficiencies in other emerging markets (and does not include government-owned inventories).

This ballpark estimate gives us an understanding of the efficiency of economic output relative to inventory. Based on this information, economic output turns against inventory are about 6 (roughly the same as sales turns). This means there is approximately 2 months of global inventory sitting around at any one time (on an economic output basis). We can do better than 6 turns. If we were able to reduce inventories by just 10%, that would free up $1.2T in capital that could be deployed to growth activities that would benefit companies, countries, and ultimately people.

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