Reasons of excessive capital tie-up

It is only when we are truly acquainted with the causes of capital tie-up and realize what causes the capital tie-up of various millions dollars, that we can finally begin to specifically and economically reduce inventory. Several of the following causes have already been discussed in previous chapters. They are mentioned here again for the sake of completeness (Fig. 49). 

We have already amply discussed the catastrophic effects on schedule effectiveness of capacities that have not been previously harmonized or the failure to recognize that individual components are missing. Delayed schedules always means an interruption of process synchronization and backlog And, this in turn binds inventory unnecessarily. 

In an enterprise that has not been harmonized, materials management and control does not stand a chance of preventing this unnecessary capital tie-up since this division does not have any leeway after sales and production have okayed the primary demand. 

Materials planning and control has no other alternative than to order inventory as if there were no major procurement problems for individual components or capacity bottlenecks in production. These assumptions, however, are entirely unrealistic without forward harmonization. 

Under these circumstances, purchasing does not stand a chance of procuring just in time (JIT) while simultaneously reducing inventory. The buyer is forced to make his purchases in accordance with the theoretically calculated demand deadlines which are always just in backlog (JIB), see Fig. 29. 

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