Inventories Get Some Out Of The Box Thinking
Spurred by COVID-era supply strains, innovative strategies accelerate for inventory management.
18 August 2020 // Sometimes it takes a pandemic for people to help make a point.
For years now, we have talked about the tradeoff between managing for optimal inventory versus optimal availability. Typically, those goals compete against each other. Increase stock on hand, and your inventory costs go up. Minimize inventory carrying costs and and the risk of lost sales due to stock-outs rise.
So, we were glad to see the Wall Street Journal headline earlier this month, “As Inventories Swell, Companies Turn to Novel Strategies To Get Through Coronavirus Crisis.” (subscription-based access). The story reports that recent supply chain challenges have forced manufacturers to go beyond the basics of vendor-managed inventory and just-in-time deliveries.
New tactics “include tapping firms that specialize in buying and holding inventory for other businesses, as well as more traditional measures such as borrowing against inventory,” the story says. Channel Capital Advisors’ Steve Box tells the WSJ that companies “want to get as much liquidity as they can to get through this period and beyond.”
In our experience, some of these ideas just paper over a problem. Borrowing against goods, for instance, can be little more than the corporate equivalent of a payday loan.
At Morgan, we see ‘inventory versus availability’ not as a burden to be managed. Rather, it’s an opportunity for transformation. With our own Inventory On Demand™ service, Morgan can buy goods on behalf of OEM clients at the factory or supplier dock and own them right up to the point of consumption.
That holding period is an opening to increase efficiency, whether that comes from consolidating shipments, shifting modes or redrawing distribution locations. So, while inventory holding has a financial cost, optimizations can mitigate those expenses—and provide gains in customer satisfaction and supply chain resilience.
So much of life comes down to difficult choices: Save or spend, grow or profit. It’s good to know that the world is realizing in the question of inventory or availability, the answer can be both. Too bad it took the meltdown of COVID-era supply chains to prove it.
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Heard On The Dock
“Companies want to get as much liquidity as they can to get through this period and beyond.”
--Steve Box, Channel Capital Advisors, describing the push for new, innovative inventory management strategies.
While You Were Shipping…
More Recent Stories You May Have Missed That Caught Our Eye
What’s Driving Digitization? (Commercial Carrier Journal) There’s long been an impulse to build digital supply chains to reflect physical processes. Those changes are accelerating now due to five factors, according to Vector COO Brian Belcher. He identifies changing freight patterns, the need for contactless transactions, new pressures on cash flow, increased focus on customers and new digital tools for freight and driver management as key elements behind the push.
Insurance Reinvented for the Digital Age (Commercial Carrier Journal) While we’re on the subject of digital re-invention, let’s note this report on technology-driven insurance. CCJ’s story focuses on insurance policies for motor carriers: Companies such as High Definition Vehicle Insurance (HDVI) are now using onboard telematics to measure truck safety and provide discounts to customers with best practices and operational data.
We’re beginning to see broader application of this new “insurtech” idea. Consider, for instance, the Internet of Things (IoT) monitors like the Intel Connected Logistics Platform (ICLP) sensors we use. When attached to freight, these devices provide secure, real-time tracking and tamper alerts for high-value goods. They also can indicate temperature excursions for customers in the pharmaceutical / biotech industries. And real-time shock monitoring provides value for shipments of capital equipment.
With these real-time indications, the overall benefit goes far beyond the logistics and supply chain department. Our insurance partners are able to work with clients to provide customized rates based on risk and accountability.
Collaborate to Dominate (McKinsey) Companies that actively collaborate with suppliers significantly outperform their competition according to McKinsey research. The consulting company’s recent findings show higher growth, lower operating costs and greater profitability in a survey of 100 large enterprises. Yet, the barriers to cross-company alignment are large. “Collaboration requires a change in mind-sets among buyers and suppliers who may be used to more transactional or even adversarial relationships,” the study says.
At Morgan, we have specialized in multi-party process orchestration. Though it can be hard, the right transformational leadership, along with tools to create common data and objectives are key to success.