Shippers see inventory rising (page 3)
-- Logistics Management, 10/1/2005
Page 3 of 4
Some companies, moreover, are holding more inventory as a way to mitigate rising domestic shipping costs and transit times. Michael Kilgore, president of the consulting firm Chainalytics, is seeing more shippers hold on to orders longer than usual in order to build better loads. He's also seeing companies shift from truck to other transportation modes with longer transit times. While these strategies do cut transportation costs, they also bump up inventory levels.
Jeff Alfaro, director of purchasing and transportation at Spurrier Chemicals, has seen transit times lengthen for his company's shipments of cleaning products. He attributes that increase to factors such as the new truck driver hours-of- service regulations and driver shortages. While Spurrier's 7-percent increase in inventory is mostly due to a 15-percent growth in sales, Alfaro is certain that the need to compensate for transportation delays has also played a role. "We're better off just planning to have a little more 'air' [when it comes to transit times]," he says.
Analysts and consultants don't expect these business trends to fade away anytime soon. Some shippers are using technology to address cost and space pressures. Brown-Forman, for example, is installing a "poor man's version" of the track-and-trace software used by parcel express carriers, says Hutchinson. Another example is SVI Systems, which provides pay-per-view movies and Internet digital systems to hotels and patient videos to hospitals. The company plans to install a new warehouse management system. "Hopefully that will help us tighten down our inventory levels and just get a better handle on what we have in-house," says Warehouse Manager John Sering.
Shippers are also working to improve visibility outside their walls by collaborating with their customers, suppliers, and third-party providers. For example, more companies are holding regular meetings with their key customers and suppliers to discuss and plan for demand they have in the pipeline, says Karen Butner of the IBM Institute for Business Value.
Another tactic involves committing to long-term stocking agreements. Spurrier Chemical has implemented such agreements with its key suppliers, promising to purchase a specified amount of inventory within a certain time period. "That allows [the suppliers] to improve their manufacturing efficiencies by running larger lots, and it shortens the shipment lead time when I issue a purchase order," Alfaro notes.
Some shippers, including Spurrier Chemical, are working on using existing space more efficiently. About 39 percent of the respondents to LM's survey, however, said they have increased their warehousing space to accommodate growing inventory levels. United Solar Ovonic, for example, next year will open a new manufacturing plant that has more storage space than does its current facility. Similarly, some of Brown-Forman's third-party service providers have been forced to contract out for more space, Hutchinson says.
When shippers do add warehouse space, says Scherck, "it's not a traditional warehouse, where you optimize your manufacturing cost by building billions of widgets and storing the widgets until somebody buys them. It's a warehouse designed to support rapid fulfillment of customer needs," he explains. "So in some cases, there's light manufacturing and kitting going on in this warehouse. In some cases, it's simply pick and pack. In other cases, it's simply hold and fulfill." Continued...
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