LM reader survey highlights impact of inventory levels on operations

While the onset of the pandemic took hold more than three years ago, there remain a few reminders of the impact it had then on supply chain, freight transportation, and logistics operations, especially when looking at things like labor, transportation prices and rates, as well as capacity.

Another area where the pandemic impact continues to be felt is inventory management. That was evident, especially in its early days, when most people were at home and were left with plenty of spare time and disposable income, which led to a significant upturn in online shopping for various goods, including durable products for home renovation projects and exercise equipment. That run-up led to major supply shortages and snarled logistics and transportation networks.

The impact this activity had on industry stakeholders was huge, and the state of inventory management today remains far from ideal, even as there has been a pronounced shift in consumer spending preferences away from goods to services like vacations, movies, and events—which was not an option during the pandemic.

The state of inventory levels served as the thesis for a recent Logistics Management reader survey of 100 freight transportation, supply chain, and logistics stakeholders.

The survey’s results were close to even, with 48 respondents indicating that they’re still dealing with high inventory levels, and 52 respondents saying that they’re no longer dealing with high inventory levels.

Reasons cited by survey respondents who say they’re still dealing with issues include: falling or slower than expected sales; previous over-purchasing; a lack of reliable supply, coupled with too much dependance on imports; backorders all being shipped at once; inaccurate customer forecasts; working through excess inventory caused by port congestion; and seasonal merchandise that arrived late last year being held until this year, among others.

And reasons cited by survey respondents who say they’re no longer having issues include: keeping with safety stock level targets, but not running beyond them; the impact of lower demand affecting downstream supply chain volumes; drawn down inventories due to lower demand; better communications with suppliers and customers; and customers reducing inventory levels to match projected sales, among others.

Steps being taken by survey respondents to mitigate, or reduce, still-high inventory levels focus on things like: using more than one sourcing partner as well as near-shoring; cutting down on spending on new orders until current inventories are depleted; spending more time on monitoring stock levels and communicating with suppliers about supply issues; extended forecasts; and managing the lowest possible inventory level, due to decreasing customer demand.

When asked what the biggest impacts of the current state of inventory management are on supply chain and logistics processes and operations, the respondents were direct in their feedback.

“Adjusting lead times across the board has placed undue stress on capacity,” said a packaging supplies respondent. Another shipper respondent noted how higher inventories have affected supply chain flow, velocity, and the ability to react in a timely manner to unforeseen supply chain- and inventory-related events, while also causing additional costs to be incurred.

While retail sales remain decent overall, there’s a sense that the current outlook is not likely to waver until there’s more evidence of a true economic turnaround, despite some modest signs of economic momentum.

That was made clear in a report from the Intermodal Association of North America (IANA).

“Retail sales are holding up, but consumers are continuing to shift from spending on goods to spending on services,” said IANA. “Retailers who were caught with low inventory levels during the pandemic have now stocked too many goods which must be worked down. “The softer outlook for goods sales, along with warehouses that are still full, is putting downward pressure on domestic production, as well as imports. The ratio of retail inventories to sales is running at its lowest level in a year-and-a-half and well below the pre-pandemic norm—a situation that creates pressure for the replenishment of goods.”  

Paul Bingham, director of transportation consulting at S&P Global Market Intelligence, noted that there are still inventories running ahead of sales in some categories, with inventory levels not where companies want them to be.

“That doesn't mean that the inventory levels are high by historical standards in some sectors,” said Bingham. “Even companies in the face of projections of weakening demand don't want to hold an average customary long-term level of inventory in the face of that weak demand. They don't want to get caught out further like they had done with over inventory last year.”