Five Inventory Management Tips for Uncertain Times

Making sure the right amount of product is in the designated place and at the right moment can be tricky. One inbound shipment that comes in late, an incorrect entry on a spreadsheet or a sudden, unexpected uptick in demand for a specific SKU can easily throw the best laid-plans to the wind, leaving companies scrambling to keep products in stock and ready to ship.

As most organizations learned in 2020, a global disruption can quickly turn the best inventory management strategies on end. During the early stages of the pandemic, suppliers of personal protective equipment (PPE), toilet paper and cleaning products were among the hardest hit. As the pandemic dragged on into 2021, everything from lumber to gas to aluminum cans—which Coca-Cola recently found itself short on—was in short supply at some point.

These shortages and supply chain interruptions forced many companies to rethink their inventory management practices. For example, many learned that just-in-time (JIT) didn’t fit their business models and that you can’t just throw more people at the problem in the middle of a labor shortage. Still others found out the hard way that spreadsheets and clipboards really aren’t the best tools for tracking product in the warehouse or distribution center (DC).

Buying forward and stocking up

For many companies, the knee-jerk reaction to the recent spate of supply chain shortages was to overbuy and overstock in hopes of cutting some of the problems off at the pass. This not only increased inventory carrying costs for these precautious organizations, but this “scarcity” mindset further constrained supply chains across many product categories.

Norm Saenz, managing director and partner at St. Onge Company, says companies that began overbuying and “buying forward” during the pandemic assumed they’d be able to return to more normalized stocking strategies sooner rather than later. That didn’t happen. “A lot of companies are still worried about having inventory on-hand to sell,” says Saenz.

“They’re likely going to continue some overbuying, buying forward and overstocking of inventory just in case supply chains become constrained again,” Saenz adds. “Just looking at the retail shelves right now, it’s clear that inventory is still a problem.”

Managing in a whole new world

An event that threw manufacturers, distributors and retailers around the globe into the unknown, the pandemic is pushing organizations to reimagine how they track inventory levels and manage orders, sales and deliveries.

For example, any company that was using paper, clipboards and spreadsheets to manage this task—and that found its products in high demand and/or raw materials in short supply as a result of the upheaval—may have turned to technology for help running what-if scenarios, identifying critical supply bottlenecks and determining future risk.

At a minimum, Bill Brooks, VP of Capgemini’s North America transportation portfolio, says companies need accurate and available data to review historical activity, run projections and make good inventory management decisions. “There are numerous different applications available to assist with that process,” says Brooks, who has also seen more companies thinking outside of the box when it comes to inventory management.

For example, if a specific carrier or route is repeatedly creating a supply bottleneck, companies are pivoting quickly to bypass that transportation provider, distribution hub and/or route altogether in an effort to keep their inventory levels as high as possible.

Others are temporarily forgoing their inbound freight plans and taking whatever they can get. For example, in lieu of receiving a full truckload of merchandise, companies will opt to receive one less-than-truckload shipment and then wait for the remainder of the order to be fulfilled via parcel and as product becomes available.

Ready, set, go

This is a time for great creativity and flexibility on the inventory management front. “You can’t be thinking in the norm or relying on others to solve these issues for you; you have to take it on yourself,” Brooks recommends. “Companies across all industries are rolling up their sleeves and realizing that if they want to come out the other side of this situation stronger, faster and better, they have to get to work solving their immediate problems and planning for the future now.”

Following are five inventory management strategies organizations can use now to both manage current volatility and optimize for the future.

1.) Conduct a thorough inventory management self-audit. Start with an honest, introspective look at current inventory management practices. Figure out what you’re doing right and wrong in this area, realizing that initiatives you may have been able to put off for six months to 12 months (e.g., adopting a new supply chain visibility platform) should probably be addressed sooner in light of the current environment.

“Look at what you control and what you can improve upon,” says Brooks. During the self-audit, consider important points like: Do we have enough people managing the process? Are they properly trained? Have we infused enough automation into the inventory management process? Do we have the right software in place? What other data can I use to make the best inventory management decisions going forward? And finally, are our inventory management processes simplified to the point where we can reduce touches and, subsequently, costs?

2.) Don’t sugarcoat it. As they work through the self-audit process, Brooks tells companies to set aside their rose-colored glasses and to be brutally honest with the self-assessments. If you have a preferred supplier that’s chronically late for no apparent reason, it’s probably time to find an alternate supplier.

And if your transportation costs are going up because you have to keep sending out same-day/next-day orders, then your stocking strategies may need a reboot. “Your boss, company leaders, shareholders and customers will all appreciate the honesty,” says Brooks, “and the fact that you’re working toward a resolution on these items.”

3.) Rethink just-in-time, at least for now. An inventory management strategy centered on minimizing inventory and increasing efficiency, the JIT model has come under fire during this uncertain time, with many fingers pointed at Toyota’s 1970s goal of only producing enough to support the next process across a continuous manufacturing flow as the reason for the current and recently-past supply chain shortages.

And while there’s clearly more to the story, the basic premise that JIT may need to be back-burnered while the world’s supply chains right themselves is probably valid.

“At a macro level, many companies that were using very tight controls over their inventories are finding that, with the supply chain situation as it is, they’re scrambling to get the inventory they need,” says Don Derewecki, senior consultant at St. Onge Co. “The pandemic definitely threw some bolts into the [JIT] machinery that no one anticipated two years ago.”

4.) Automate more inventory management processes. With the labor market in its current state, more companies are turning to technology for help managing inventory. Warehouse management systems (WMS) are being used to manage activity within the company’s four walls; software as a service (SaaS) and cloud options help organizations collaborate across their supply chains; and control towers promise high levels of visibility as shipments make their way across the end-to-end supply chain.

“We’re at a point where companies should be automating as much of the process as possible,” says Brooks, who sees technology not as a replacement for human labor, but as a great facilitator that allows employees to focus on more important projects. “Automation allows companies to maximize their employees’ value and leverage their minds and skillsets for more value-added opportunities.” Saenz concurs, and says most of St. Onge’s current projects involve getting automated systems installed in facilities. “With automation, you gain tight control over your inventory and there’s less risk of losing or misplacing inventory,” he adds. “For example, simply automating your storage environment can help improve inventory accuracy.”

5.) Hope for the best, but always prepare for the worst. “Be prepared for the worst-case scenario,” Derewecki recommends. And while this may seem like a pessimistic business approach, tough times call for tough measures. Ask yourself questions like: What will happen if we can’t get X product? What can we get as a replacement? And if there are no replacements, how can we effectively manage our own customers’ expectations and help them run their businesses during these times of frequent supply chain shortages?

The latter is especially important for maintaining long-term, valuable customer relationships in an era where even though product is manufactured and available, it may not necessarily have your name on it. Demand for raw materials and finished goods are both high right now, and everyone seems to be vying for the same, constant source of supply.

As they grapple with these uncertainties, Derewecki says smart shippers are focusing on what they can control. “In times of scarcity across multiple commodity sectors,” he adds, “if you own the product and if it’s in your supply chain, you’d better know exactly where it is, how much of it you have and how quickly you can get it out the door to your customer.