Taking Stock of Inventory Management
Empty store shelves during the pandemic drove many companies to new forecasting tools, added 3PL services, and increased collaboration to inform inventory management.
One of the most visible impacts of the pandemic on the supply chain was inventory management. Empty store shelves, essential item shortages, and limits on the number of certain products a customer could buy at some retail stores impacted individuals on a personal level. And supply chain managers struggled to fulfill customer demand that was very different from its forecast inventory planning.
"No longer can companies rely primarily on historical data and formulas to accurately forecast inventory," says Steve Banker, vice president of supply chain management, ARC Advisory Group. The silver lining, however, is the adoption of demand sensing practices to inform inventory forecasting.
"Companies that made use of planning systems combined with demand sensing—the use of multiple, real-time signals, like sales in a particular store or shipments from a retailer's warehouses to their stores and machine learning—had significantly fewer errors in forecasting during the early days of COVID," Banker explains.
Two years later, demand sensing is part of many inventory management systems. Another best practice that remains today is evaluating stock levels across an entire network, rather than site to site.
It has become important to evaluate suppliers and customers individually. "Companies are often willing to pay more for transportation to meet the needs of retailers that demand 100% compliance on-time and in-full deliveries," Banker says. "Failure to do so can result in hefty fines for the supplier. Other, less critical shipments can be handled in more economical ways."
Having the systems and data to make these informed decisions is critical.
Cost-effective Transportation Options
Beyond the planning stages of inventory management, companies also face challenges on the execution side due to volatility in the transportation market, virtually across all modes.
"Inventory management is very different today than two years ago," says Michael Lin, director of supply chain, Musco Family Olive Company. "Companies are increasing their comfort stock to offset the uncertainty of a pandemic."
AFS, a third-party logistics (3PL) provider, can attest to this trend across many of its shipper customers. "Pre-COVID, the strong trend was toward just-in-time and lean inventory levels to reduce obsolescence and free up working capital," says Andy Dyer, president of transportation management for AFS. "These strategies are highly dependent upon reliable transportation networks.
"Recent transportation network disruption has prompted companies to think much more strongly about assurance of supply while being mindful of carrying costs," he adds.
"One of the primary issues is port capacity," notes Lin. "Delays at West Coast ports are resulting in companies looking at other ways to get imported inventory into the United States. This includes using alternative ports, like Jacksonville, Florida, or other ports on the East Coast, resulting in more intermodal shipments."
It may appear to be counterintuitive, but in today's environment, "It can be more cost-effective to receive goods at an East Coast port and deliver it over-the-road in California when you factor in lost sales due to stockouts," Lin says.
For some companies, such as Musco, the solution to addressing a volatile transportation environment is to partner with a 3PL provider with scale and expertise in transportation.
"In order to manage inventory, you must have the capacity to transport it and have visibility," says Lin. "In this environment, it is important to leverage every piece of information available.
"There are many systems that support historical ERP planning, production, and forecasting," he adds. "The challenge is having visibility once a product is on an ocean carrier or multi-modal train.
"While trucking companies offer some degree of visibility regarding where a truck is and the estimated time of delivery, they still do not make it easy to determine if your shipment is the first for delivery or the last, based on how the trailer is loaded," Lin notes. "The situation is even more challenging with ocean carriers.
"We count on AFS to handle our transportation," he says. "While we manage inventory levels based on factors such as increased demand for certain products, AFS provides expertise to determine the most efficient and cost-effective ways for us to move products. They evaluate modes and model the best way for us to serve our customers."
3PLs Devise New Solutions
Transportation management is only one example of how 3PLs help companies adapt to a supply chain that is still highly disrupted. "3PLs enable inventory efficiencies through visibility, reliability, and sense-and-respond technologies," Dyer says. "Knowing what you have, where, with confidence that it can move where you need it, reduces the need for high inventory stock levels."
Additionally, 3PLs like AFS have developed supply chain assurance programs that allow customers to have access to nearby inventory without the high working capital requirements. As companies look at sourcing products from different locations, often a necessity due to transportation challenges, a change of this magnitude can take time to effect and realize a return on investment (ROI) easily or without a price tag.
The AFS service offers financing and places inventory near customers' points of consumption or distribution. The 3PL purchases the inventory from the supplier, thereby accelerating the supplier's cash position and, according to Dyer, "providing mutual value to them."
The customer (buyer) pulls the inventory through AFS as needed, "and the customer enjoys assurance of supply without deploying increased levels of working capital," he says.
finding the silver lining
If supply chain managers are looking for the silver lining after more than two years of operating during a pandemic, there are several—from new forecasting tools and practices to additional 3PL service options to greater supply chain resiliency and enhanced collaboration.
"During these uncertain times, we have become much more collaborative with our providers and customers," says Lin. "We all want our products to reach the end user in the most efficient and cost-effective way, without disappointing our customers or losing sales.
"While some of these changes have been the result of necessity," he says, "greater collaboration throughout the supply chain is a positive move for all parties."