Inventory unpacked: Decouple demand and supply challenges to deal with disruption

Business continuity is high on the agenda for supply chain managers. Executive teams are reviewing and pivoting their business and operational models to adapt to persistent disruption and a rapidly evolving environment.

Such significant fluctuations in product availability calls for the decoupling of demand and supply chain challenges, breaking down the problem into smaller parts and solving them individually in order to rebuild a more sustainable supply chain flow.

• Demand: With COVID-19 causing a change in customer shopping behavior and category demand patterns, demand forecasting must be reassessed. Current forecasts cannot merely depend on the last two years of data to predict trends and seasonality. Each prediction needs to estimate the future needs of customers within an organization’s sector and predict the timing of economic changes. Sales and operations planning managers should collaborate closely with commercial managers to understand customer needs and future buying patterns by undertaking consumer surveys and monitoring similar product demand patterns. A relentless focus must also be applied to the core products that drive the business and stock products that drive profit margin.
  
  
• Lead time: Lead times have become longer and uncertain due to freight congestion and labor (manufacturing, trucking, and warehouse) issues. Suppliers are manufacturing products on reduced capacity and facing shortages in terms of labor available to make them. Therefore, it is important to provide a frequent forecast to suppliers and place orders accordingly in adherence to the lead time to ensure products can reach customers on time. Ensure orders are being prioritized as required, and relationships with suppliers are collaborative, cooperative, and frequent as market dynamics evolve so quickly.
  
  
• Order quantities: With longer lead times, it is important to balance out order quantities to have larger volumes in stock to ensure business continuity, although this will be dependent on the industry and product, as certain industries have grown and some have contracted during the pandemic. In general, it is prudent to secure stock levels that can support a longer period of demand as ports are facing constraints in delivering products to the warehouses on time and delays of weeks or more are commonplace. Before adjusting quantities, assess the inventory that is in WIP and in-transit goods that are backlogged and could cause a major spike in warehouses in the days to come. In short, plan order quantities accounting for all variables and any storage space constraints.
  
  
• Stocking strategy: Revise safety stock targets based on an understanding of the true cost of overstocking and understocking. Also look to increase cycle frequency. For example, if a company is planning inventory on a monthly basis, move to a weekly cadence to increase visibility and plan actions accordingly. Understand the warehouse limitations and the benchmark over delivery time amongst key competitors. Prioritize stocking products that have high-profit margins and stable demand, while other products can follow strategies of VMI (Vendor Managed Inventory) or make-to-order.

COVID-19 has surfaced major disruptions and supply chain managers need to rapidly and regularly rapidly assess the associated risks, responding with new levels of business agility that can mitigate ever-changing environments. While macroeconomics may be driving the disruption, it is micro levels of operational analysis and implementation that can hold the key to regaining control before considering a move toward heavy capital investment and wholesale