Transform Your Supply Chain for Omnichannel – Part I
Inventory rich is a condition enjoyed by many retailers, manufacturers, and wholesalers. Much of this is due to systemic inventory. And the condition is becoming more significant as firms deal with the differing demands of omnichannel and with the accelerating requirements of lean for supply chain stakeholders. The challenge is compounded for companies that source and/or manufacture globally with their large supply chains.
Many firms are focused on supply chain finance, just—in-time, vendor managed inventory, buy-sell, optimization, and other programs. These supply chains are based on the end positioning for inventory; they are not based on how fast inventory moves. Turns and days on hand—and liquidity—are not good.
Numerous current operations do not have inventory velocity which creates financial and customer benefits. Systemic versus velocity is a choice derived from using the old supply chain versus designing and implementing the new supply chain.
There is inventory throughout the supply chain—multi-echelon distribution, in-transit, raw, work in progress—everywhere. The situation is a factor of the way, for multiple reasons, that present supply chains are designed and managed in a somewhat piecemeal fashion, instead of in supply chain totality.
Omnichannel did not cause the condition; it has compounded it. Additional channels have increased uncertainties with demands and how to meet and allocate products to satisfy the customer buying options. Some have taken this to mean carrying more inventories to handle channel demand ambiguities. This is especially interesting in that companies can have too much inventory; yet these firms may also be out of stock of items.
Unsold and unnecessary inventory can negatively impact profits from intense promotions and steep markdowns to sell it. Reactions to these situations can, in turn, cause purchase cutbacks in future quarters that limit inventories, resulting in lost sales.
Supply Chain Reality. These points lay the foundation for many excess inventory problems that run through supply chains, regardless of industry or market.
- Complex international inbound supply chain. Whether the parts and products are coming from suppliers or company factories, if they are located outside the home country, the global supply chain is the most multifaceted and demanding. The distance and flows among different countries set the stage for what happens throughout supply chains.
Add in that there can be 15 (or more) parties involved with an international order and shipment. Each party, to varying degrees, operates within its own practices; there is limited real integration from a supply chain perspective. Even more, one of the key parties—container lines—brings vagaries to the supply chain execution with schedule times and reliability.
The complexity is increasing. Additions and changes to suppliers, origins, products, production and factory trade-offs—and more—make understanding and managing the supply chain challenging.
- Supply chains within supply chains. Every firm has a supply chain—and more. The idea of a single company supply chain is an illusion. In actuality, there are supply chains within supply chains.
Think of the Mississippi River in the US. It is very long and runs from Minnesota down through Louisiana and ends in the Gulf of Mexico—the Mighty Mississippi. But the river is not a single entity. It is fed by 7000 streams, water basins, and rivers to form one river that actually is part of 31 states and 2 Canadian provinces. That is how supply chains are—many branches of inventories—and how they have evolved.
Supply chains, as a result, are more complex than is often presented. Not recognizing that actuality means that supply chains can be under-designed and under-managed.
- Emphasis on the downstream. Much supply chain discussion involves some part of the domestic supply chain—distribution centers, transportation and such. The exception may be international transport. This is similar to lean supply chain management which focuses much within the four walls of warehouses and factories. With the emphasis, companies can be operating in a fulfillment mode and looking at the last mile and other topics that do not address inventory excesses. By the time inventories reach warehouses, they are often at excessive levels.
These shortcomings may create a myopic interpretation of supply chain management design, operations, and performance. With all the focus on the downstream, the excess inventories issues exist. These could have been mitigated with a comprehensive view of the supply chain.
- Uncertainty. Inventory is a buffer against uncertainty. There are issues with demand ambiguity, network design, and inventory positioning. But there is another driver of inventory uncertainty—time—the amount of time it takes to replenish items. International sourcing has long lead times that also have variability. The additional time and inconsistency increase inventory requirements and compound uncertainty—and the amount of inventory that is carried.
You might be interested in: Specialist Certificate in Inventory Control & Materials Management