THE RIGHT STUFF

Keeping The Correct Amount Of Inventory Is Harder Than Before

Shortages of products, parts and components have become common across the supply chain. Regardless of the causes – the war in Ukraine, the pandemic’s lingering effects –organizations must ensure they have the right inventory, at the right amounts and locations, so that customers get what they need.

What inventory looks like depends on what products are under discussion, says Mike Mortson, CEO of Supply Chain Game Changer (supplychaingamechanger.com).

“At this time of year, if you’re looking for cold medication as an example, it can be very difficult to come by,” Mortson says. “Same if you walk through many of the grocery store shelves. It’s probably difficult for almost anybody to go into a grocery store with a shopping list and come out with all of the things that you normally would.”

The just-in-time model of inventory management collapsed during the pandemic, forcing many organizations to look for other strategies, he notes. The recent automotive chip and baby formula shortages are examples of what happens when there’s a single point of failure. To remedy this, companies should seek out more than one source for goods and components, Mortson advised. That way, if one node in the supply network fails, other sources are available.

Another tactic involves creating more strategic stock, Mortson advises. That doesn’t mean keeping all SKUs in excess stock; rather, look to establish buffers for critical material.

“It could be on a site, it could be placed with a supplier, but something that represents more of a long-term investment to ensure continuity of supply if there is a disruption of any kind,” he says.

As well, focus on supply chain basics, Mortson says. Look for ways to simplify your supply chain, disintermediate the process and reduce the number of handoff points. For example, ship direct to the consumer or a facility, if possible, rather than sending goods through multiple points at distribution facilities or warehouses.

“Then what you’ve done is simplified the supply chain,” he says. “You’ve reduced the amount of time it takes to get goods to market. You’ve made your supply chain both more robust, more responsive, and more resilient.”

Dealing With Volatility

The volatility caused by disruptions won’t resolve anytime soon, says Bernie Uhlich, president and managing director of Uhlich Associates Inc. Companies must therefore plan for a lack of stability regarding inventory. Companies should also avoid overreacting to that instability by buying too much or too little inventory.

The unpredictability of today’s supply chains has sped up digital transformations for many organizations, Uhlich notes. Organizations can use technologies like AI to run various scenarios regarding inventory and pick one that provides a suitable demand profile or supply need. “Now you can base the action on some kind of an intelligent thought process,” he says. “And that’s where IT systems really help.”

Uhlich lays out several steps in managing inventory, with the first one being to find the true problem and define your goals. “Do you have a problem with too much or too little inventory? Do you know what it should be? Figure that out,” he says. “That’s step number one: make sure that you know your goal and your target, because then you’ll know whether you’re in good shape or bad shape, and it’ll help you figure out what the plan is to recover from that.”

A next step is to take a holistic view of inventory management across the supply network, Uhlich says. Map out how much inventory you have and where it is to determine if you have the right amount. “And then, if you look at the holistic view, you understand how the things interact and it’ll help you get a better picture of where your problems are,” he says.

How to handle inventory largely depends on what commodities or products an organization is looking to stock, says Tony Iampietro, director of strategic sourcing at JLL, a commercial real estate company. Yet it’s helpful across industries to forge strong relationships with suppliers, he notes. That way, suppliers are more likely to make the commitment to your organization when it counts.

Last year, organizations pushed to stock up as much as possible because it was uncertain when products would be available again. That tendency is less common now, as organizations try to balance the need to keep stock on hand and the risk of stock outs.

Finding that balance, Iampietro says, depends largely on working closely with suppliers.

“Have constant dialogue around what’s happening in the marketplace so that you’re dialed in,” Iampietro says. “If you’re buying, for example, consumable products, high volume products that are typically made offshore, look at if the company has the capacity to provide those products at a competitive price domestically. If not, how’s their relationship with their contractor in Asia or in China? Really provide that insight so that you’re able to plan more accordingly, stocking inventory.”

Technology is also playing a larger role in helping organizations manage inventory, Iampietro adds. Technology can, for example, help to take large datasets and build algorithms to predict swings in consumption, either up or down.

“All that’s really doing is automating processes,” he says. “Essentially, taking some of the work away, just your mundane work, and having bots do the work. That kind of helps with inventory management, as well. They’re able to take lots of datasets and make recommendations around what to buy, when to buy, and what price to buy.”

Lead Times

John Down, business improvement specialist at Norcan Fluid Power Ltd, agrees that the environment has become more volatile in recent years. In dealing with his company, certain manufacturers had a program through which they would deliver certain SKUs within 10 days. Sometime last year, that timeframe went up to three months, then, two or three months after that, up to six-months.

“And now we’re looking at nineto-15 months for some of these SKUs,” Down says. “It’s really hard to trust your system and it’s hard for the system to react to changes that quickly. If you’ve got orders in the pipeline already, just adding more orders, it’s going to create more of a bullwhip effect.”

The company has looked for creative solutions to deal with this, he says. The organization talked to customers and manufacturers for strategies to potentially mitigate those lead times.

“It’s been actually relying less on what the current system is and kind of listening to what’s happening in the market, just seeing what’s happening with manufacturers, what’s happening to their lead times, he says. “What are they struggling with on their product lines and where can we pivot.”

The company has also done a lot of front-end buying to ensure inventory remains available throughout the fiscal year, Down says. Some of the organization’s branches probably do 50 per cent of their buying in the first three months, with the balance of the purchasing happening throughout the rest of the year.

Certainly, the past few years have added volatility to the already unpredictable field of supply chain. When looking at inventory management, avoid focusing on individual components of the process, like lead times, says Mortson of Supply Chain Game Changer.

“There are so many dynamics at play, that if you don’t take a holistic view, any savings you think you make in one area, you will lose on another area,” he says. “You have to look at the whole thing in its entirety, and if you don’t, if you’re so focused on the trees, you will have lost sight of the forest.” SP

BY JACOB STOLLER