Supply Chain Pains: Rethinking Inventory Turns
While adapting to the ongoing supply chain disruptions, many small and mid-sized companies are learning the art of improvisation. Learning on the fly often includes an element of unlearning, and as timelines in the supply chain become elastic or worse, it’s worth re-evaluating some sacred cows. Inventory management is a prime example.
When Turns Fail
These days, retailers are taking a serious look at what their “normal” inventory looks like and it’s a very different picture than they’re used to. Thanks to supply chain uncertainties, many of them are choosing to sacrifice turns. This goes directly against the faster-is-better mantra that was taught to everyone by highly efficient retailers like Walmart. In today’s landscape, the concept of just-in-time inventory is nostalgia.
As a result, many sellers are now sacrificing turns and thinking they now need to keep a lot more inventory in stock. They’re buying in much larger amounts, because the cost of money is relatively cheap right now. Some companies are even borrowing money to acquire inventory, and obviously there’s some money that’s guaranteed by the government. Companies are taking a much higher inventory position and not being afraid of looking bad in terms of turns or their use of cash. Why? Because even if it came in at a higher price, inventory to sell is better than not having any to sell.
What To Stock?
Suppliers are feeling the disruptions too, and are profit-driven like everyone else. Retailers – and not just retailers – should be taking a close financial look and deciding what to prioritize. For many companies, this could well mean they can’t support all the products or all of the demand that they’re accustomed to. Suppliers are going to focus on the most profitable items. This means that promotionally-priced merchandise is likely to be in short supply. Retailers that ordinarily use these products to drive volume need to take a serious look at what’s going to be available this fall and holiday season.
Even if your company’s solution is to put its head down and try to bull through the next 12-24 months, this is a good time for re-assessment and flexibility. People are still going to buy goods, but if you don’t have inventory, they won’t be buying them from you. Zero in stock at a good price doesn’t match in-stock at an accessible price.