Inventory Strategy Supply Chain Strategy

If 2020 has offered us one lesson, it would have to be that the only certainty we can count on is uncertainty. This lesson is especially true in the supply chain industry. Between the COVID-19 crisis, changing attitudes toward China, wildfires, and the meteoric rise of e-commerce, the organizations within the supply chain have been tasked with reacting to many changes.

These disruptions caused a shortage of supply in product availability, leading to warehouses being emptier than usual. Other companies – mainly retailers – shut down altogether. However, they already had inventory on the way, which caused a spike in stock within distribution centers.

2020 was a wake-up call for the supply chain industry.

Indeed, there were changes happening already, including the rise of e-commerce. Many companies were heading down the e-commerce path; however, there seemingly was time for companies to adapt to new products, practices, and processes that could allow themselves to continue operating in suboptimal methods. However, the pandemic threw gas on the fire, so to speak, and caused everyone to react quickly to another new challenge.

The companies who survived and thrived during this tumultuous year had previously adopted solutions geared around being flexible and adaptable to changes. There was less of a learning curve because they were already positioned to make nimble changes in their operations.

Near-Shoring

One major step companies are taking to adapt to the “new normal” of the supply chain is near-shoring or sourcing goods closer to the sale point. According to The Innovation Enterprise, 32% of North American and European manufacturing and distribution companies either have or are about to near-shore, with 48% of companies saying they plan to within the next three years.

They cite the reduced shipping time and cost, along with an increased response time as the primary reason to take this step – two direct benefits associated with adjusting operations to meet consumers’ changing expectations.

Adding Safety Stock Inventory

In response to not having enough of particular products with a surge in demand, companies are changing their inventory strategies on safety stock. This change is especially real for necessary products – think of how toilet paper was in high demand during the pandemic outset.

If the supply chain is disrupted, companies need to be able to continue operating in response.

Each company and each industry will have its own calculations of what that safety stock needs to be according to its own order volume and replenishment frequency. However, we are hearing those calculations are changing rapidly to accommodate potential future disruptions.

Increasing Storage Density

To go hand in hand with the increase in safety stock goes an increase in storage density. With these recent changes in supply chain strategies, how much you store, and what you are storing may look different. Products with high order volumes or products that need to get to customers quickly are being stored at higher reserve storage levels. Warehouses are being tasked with increasing storage without increasing their footprint, and high-density storage options like pushback racking or pallet flow racks are ideal solutions in many settings.

Optimization of Pick Processes

In alignment with the acceleration of e-commerce, companies are looking at how they are handling pick processes. More than ever, the entire process is being evaluated, from the design and layout of a facility to the level of automation throughout the facility. Ultimately, warehouses will be holding more SKUs in inventory as SKU proliferation continues in many organizations. This development requires that a facility is optimized for storage and material flow.

We are also seeing more facilities adopt forward pick strategies – such as pick modules – to improve fulfillment speeds. More now than before, there will be some type of automation involved at this point as well, including autonomous mobile robots picking on the ground level, with storage above.

What’s Next?

The companies who need help the most are doing everything from storing products in trailers on their property to using the space designed for forklifts for storage – some are even storing products on their docks. They are struggling to pick and ship efficiently, causing customer service disruptions. These challenges cause labor costs – including overtime – to rise as a percentage of their sales.

One of the things we have learned over the last six months is that there will always be disruptions. Whether those disruptions come in the form of global pandemics, fires, or natural disasters, we know the best action an organization can take is to get ahead and be prepared. We can help. Give us a call – we would love to learn about the challenges your business is seeing and pair them with solutions that help them be nimble, flexible, and ready to adapt as the next new challenge arises.