?? Thriving Amidst Chaos: Essential Inventory Management Tactics for Retailers During Uncertain Times ??

-??By S. Mahmud Sagir & Yathish Brugesh

?In a world where uncertainty seems to be the only constant, retailers face an ever-evolving array of challenges that disrupt their inventory management. From global pandemics and geopolitical tensions to natural disasters, the once-predictable rhythms of retail supply chains have become unpredictable. Imagine a retailer caught in the whirlwind of a sudden sales surge, only to find their inventory depleted due to unforeseen material shortages or miscalculated demand forecasts. This chaos can result in overstocked warehouses or empty shelves, leading to blocked capital, wasted space, and most critically, disappointed customers.

The true test of resilience lies not in avoiding disruption, but in how swiftly you can adjust and align your supply chain to meet new realities.

Consider the staggering statistic from Supply and Demand Chain, which reports that inventory mismanagement costs the global economy $1.1 trillion annually. These disruptions are not just isolated incidents but recurring challenges that test the resilience of supply chains worldwide.

This article delves into strategies that can help retailers better navigate these turbulent. By enhancing forecasting accuracy and adjusting inventory practices, efficient logistics management businesses can build more responsive and resilient supply chains. Through examining these strategies, we uncover ways to mitigate the risks and turn crises into opportunities for improvement. Join us as we explore effective inventory management techniques designed to help retailers thrive amidst disruption.

Determining the impact on the inventory

?Recent procurement research by APQC reveals key insights into how organizations respond to disruptions in their supply chains:

• 41% of organizations take 5-6 days to capture the impact on materials and products.
• Nearly 40% can assess the impact within one day, showing higher responsiveness.
• However, 5% of organizations take a month or longer, a delay that can critically hinder operations and lead to significant losses.

When facing disruptions, the first crucial step is to accurately estimate the impact on inventory. This includes:

• Assessing how many days/weeks the inventory might be out-of-stock or running low.
• Calculating the recovery time needed to restore normal stock levels.
• Analyzing the supplier's lead time, using both recent and historical data to anticipate further delays.

By conducting thorough operational reviews, organizations can gather explicit data that improves visibility, helping them plan for both current and future inventory needs. The quicker this impact is identified, the faster corrective actions can be taken to mitigate disruption.

Tools like Kinaxis RapidResponse, SAP IBP etc provide real-time inventory insights and support quick decision-making. Many companies lack these tools, making it essential for them to adopt effective impact assessment mechanisms to manage disruptions and prevent operational paralysis.

Modifying the inventory policy to meet business needs until stability is achieved

Why to modify Inventory Policy?

Adapting inventory policies during disruptions is critical to maintaining business continuity and meeting customer demand. This approach is particularly relevant in dynamic environments where demand patterns can shift rapidly, and traditional inventory management strategies may become less effective

• Switching to Continuous Review Policy: Retailers like Walmart and Amazon have been known to adapt their inventory policies based on real-time demand data. During the pandemic, many retailers switched from a periodic review policy to a continuous review approach, particularly for high-demand items. Continuous review allows for real-time tracking of inventory levels and quicker response times to restock SKUs that are depleting rapidly. This approach provided greater flexibility and allowed inventory planners to address exceptions early, reducing the risk of stock imbalances.

Real-time decisions, real-time success: Continuous inventory review is the key to thriving amidst unpredictability.

• Safety Stock Adjustments: Increase safety stock levels to buffer against supply chain uncertainties. For example, if lead times have increased from 30 to 60 days, increase safety stock to prevent stockouts.
• Reorder Points: Adjust reorder points to align with updated lead times and demand fluctuations. For example, increase reorder points from 200 to 250 units and make them dynamic to adapt to changing demand trends, ensuring inventory levels remain responsive and aligned with business needs.
• Order Quantities: Adjust order quantities to account for longer lead times and higher safety stock. Increase order quantities to ensure adequate supply during disruptions
• System Updates: Update inventory management systems with new safety stock levels, reorder points, and order quantities.

Change in Flow of goods and mode of transportation

During disruptions, the inflow of orders to suppliers can surge significantly as retailers attempt to catch up with sales and maintain inventory levels. This situation can lead to challenges in production and shipment flow, specially if suppliers are constrained by in-house raw material, production capacity and labor issues. In such scenarios, supplier flexibility becomes crucial.

Key strategies to address these challenges include:

• Expedite Component Sourcing: Suppliers can expedite component sourcing by establishing relationships with multiple component suppliers, utilizing expedited shipping options for critical components, and closely monitoring inventory levels to address shortages promptly. By fast-tracking component procurement, suppliers can reduce production lead times and better meet increased demand during disruptions.
• Prioritization of Shipments: ?With assistance from buyers and demand planners, prioritize shipments of assortments that are critical to business operations and have a significant impact on inventory. This prioritization helps suppliers align their production planning with urgent demands.
• Mode of Transportation: For international shipments, sea transport might result in long delays, leaving store shelves empty until goods arrive. In cases where the SKUs have a low weight-to-volume ratio, consider switching from sea to air transport to expedite delivery, provided it aligns with the cost considerations, if needed buyer can initiate collaborative cost sharing agreements.
• Optimize Transportation Routes: Develop and implement alternate routes to avoid areas prone to disruptions. Utilize data analytics to prioritize routes that are less affected by disruptions, which can help in maintaining a steady flow of goods. For instance, if the primary route through the Suez Canal is blocked, consider rerouting shipments via the Cape of Good Hope, even if it takes longer, or through alternative regional ports. Additionally, explore inland transportation options, such as rail or truck, to bypass affected areas and ensure timely delivery.
• Improve Customs Processes: Utilize pre-clearance processes and ensure that all documentation is accurate and complete to expedite customs clearance at both origin and destination ports.
• Cross-Docking Implement cross-docking practices to reduce handling times and expedite the movement of goods directly from receiving to shipping, minimizing storage time.
• Flow of Goods to Stores or store flow: Goods typically flow from the inland destination to the warehouse, cross-dock, and then to the fulfillment center before reaching stores. To speed up the process, consider directing goods directly to the fulfillment center, bypassing the warehouse. This approach can reduce handling time and expedite shelf replenishment at stores.

Collaboration across multiple stakeholders

In uncertain times, effective inventory management becomes crucial for retailers to thrive amid chaos. A key tactic is robust collaboration across multiple stakeholders, ensuring that every part of the supply chain operates in harmony. Here’s how essential collaboration tactics enhance inventory management during disruptions:

In times of crisis, collaboration across the supply chain transforms reactive responses into proactive success stories

• Demand and Inventory Planning Teams: To navigate unpredictable market conditions, these teams must work closely to adapt inventory policies swiftly. When facing sudden surges in demand, timely communication between demand and inventory planning teams allows for quick adjustments in inventory allocation, helping retailers meet customer needs effectively.
• Supplier Relationships: Maintaining strong connections with strategic suppliers is vital. During peak seasons or disruptions, leveraging these relationships helps negotiate capacity adjustments based on historical performance data. This proactive approach ensures suppliers can extend their capacity to meet increased retailer demands, supporting stability in inventory levels.
• Logistics Coordination: Effective logistics coordination is essential to secure container space and timely deliveries. Advance planning and booking with logistics providers can mitigate delays and optimize freight costs. This is particularly important during high-demand periods when securing space can be challenging and costly.
• Shared Information: Transparent communication across all teams—including demand planning, inventory planning, suppliers, and logistics—ensures that everyone is aligned and can address potential issues proactively. Shared insights into peak demands and operational needs enable all parties to work together seamlessly, reducing risks and ensuring smooth operations.

Transparent visibility with the help of required metrics across all levels

In times of uncertainty, maintaining transparent visibility across organizational levels is vital for effective inventory management. This involves equipping middle management and leadership teams with critical insights on crisis impact, inventory levels, supplier status, and the movement of goods.

Metrics for Crisis Impact:

• Sales Loss: Measure revenue impact by tracking sales declines compared to previous periods during disruptions.
• Inventory Availability: Monitor stock levels to prevent stockouts and overstocks. Use metrics like stock turn rates and dashboards to manage inventory effectively.
• Supplier Production Visibility: Track supplier performance with metrics such as on-time delivery rates and production lead times to anticipate and mitigate delays.
• Movement of Goods: Ensure timely delivery by tracking transit times and shipment statuses. Tools like GPS tracking can help monitor international shipments and address delays promptly.
• End-to-End Visibility: Oversee SKU demand and goods movement from origin to store. A centralized platform can offer real-time tracking and reduce data discrepancies.

Technology and BI Tools:

• Customizable Reporting: Use Business Intelligence (BI) tools to create reports tailored to current scenarios, such as real-time dashboards for stock levels and supplier status.
• Common Data Source: Integrate data from ERP and CRM systems into a unified platform to ensure accurate reporting and reduce discrepancies.

In summary, effectively managing inventory in response to policy changes and optimizing the flow of goods for faster delivery requires robust collaboration with various stakeholders. Ensuring transparency through accurate data and information is essential for smooth operations and minimizing risk.