Shippers see inventory rising (page 2)
-- Logistics Management, 10/1/2005
Page 2 of 4
CUSTOMERS ARE DEMANDING. Rising sales volumes may be one reason why 44 percent of respondents to Logistics Management's survey on inventory management cited "customers' requirements" as the main cause of higher inventory levels. For example, one survey respondent reported holding more inventory because Wal-Mart is ordering fewer cases more frequently.
This trend is especially prevalent in the consumer packaged-goods (CPG) industry. According to the Grocery Manufacturer's Association 2005 Logistics Survey, retailers are requesting more floor-ready displays, customized packaging, and store-ready, cross-docked pallets than they have in the past. And they are requiring shorter lead times even as more companies implement "zero tolerance" policies for late shipments.
Other industries have also been adding inventory recently to meet customers' requirements. Steve Wood, supply chain manager for high-tech manufacturer Siemens Canada, estimates that his company has had to increase its safety stocks by 7 to 8 percent to satisfy customers' demands for specific delivery times. "It always comes back to customers saying, 'I can call your competition and get it there tomorrow. Why can't I call you and get that?' And there's only one answer to that," he says.
PRODUCT LINES ARE EXPANDING. As a walk through the aisles of any grocery store will confirm, manufacturers are adding new brands and product variations as never before. That means logistics operations today are supporting many more stock-keeping units (SKUs) than they did in the past. A little more than one-third of all respondents to our survey cited product proliferation as one reason they're holding more inventory these days.
Nor is that trend limited to consumer products or high-tech goods. Shorter cycle times are a must as manufacturers turn formerly generic, unadorned products into fashion statements. Airgas Products, for example, now makes welding helmets and hardhats sporting NASCAR and NFL team logos; it produces protective eyewear under the Harley Davidson and Orange County Choppers brands.
That means more manufacturers are introducing new products every six to 12 months and discontinuing products that aren't selling. As a result, says Airgas Products' Phillips, distributors have to continually add new products while getting rid of obsolete styles.
SUPPLY CHAINS ARE LONGER AND SLOWER. Supply chains are not only growing more complex, they're also becoming longer as more companies manufacture, source, and sell their products around the world. "With a company that's shifted production overseas, carrying more inventory is almost a given," says Mike Sullivan of UPS Consulting. "Obviously, the time between shipments may be longer than what they are used to with domestically sourced goods."
Or as The Colography Group's Scherck says, it's hard to be both global and lean. "What I mean by that is that if you have a global supply chain that is as lean as it possibly can be, and you're able to reach that Utopian one-to-one inventory-to-sales ratio, what you end up with is risk of interruptions that are substantially higher than if you maintained buffer stocks," he explains.
That comes as no surprise to Jim Hutchinson, vice president of supply chain integration for Brown-Forman Beverages. Brown-Forman recently added seven days to its safety stock of Jack Daniel's Whiskey in the United Kingdom because of variability in transportation times. "Sometimes we could get bookings and sometimes we couldn't," Hutchinson says. "And sometimes [our shipments] would get bumped."
Port congestion has also added to Hutchinson's headaches. There have been times when the Port of Southampton in the United Kingdom was so backed up, he relates, that the ocean carrier diverted ships to the Netherlands and transshipped his company's containers to the U.K. via the English Channel. Continued...
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