Given the Coronavirus disease (COVID-19) and the current economic uncertainty, it’s most likely that your most pressing business worry right now is inventory.
Inventory reduction is the most powerful strategy you can employ right now to defend against long-term business impacts. Particularly if your customer base is composed of industries hard hit by COVID-19 restrictions.
Different industries, different pains
Many of today’s wholesale distributors’ and retailers’ demand forecasting challenges vary widely, depending on whether they supply to businesses in distress – like retail shops and restaurants – or businesses that have more demand than they know what to do with.
For instance, one distributor says their home gym equipment orders went from their normal 30 per week to an astounding 660 per week.
However, another distributor of tires reported demand down 50% and their first reduction-in-force in over 100 years.
Some best-ditch-effort strategies
Distributors are making some decent operational adjustments, such as:
§ All non-distribution center/warehouse employees working from home.
§ Mandated health guides put into force for those who can’t work from home.
§ Using will call, order by phone and curbside pick-up.
§ Getting flexible with collections, such as extended invoice or spread payments.
§ Redeploying trucks or manufacturing facilities to address high demand.
§ Re-setting rebate levels with suppliers.
§ Watching for competitors going out of business and reaching out to their customers.
But, inventory reduction is the one defense strategy that’s working consistently across all industries. It is by far the biggest thing you can do to protect your business. Here’s why…
Inventory is your most expensive asset.
The average wholesale distributor carries around 20% more inventory than what they need. So, it makes sense that an inventory reduction (even a small one) will bring the biggest and most immediate improvement to your bottom line.
“The familiarity of spreadsheets and prevailing concerns for speed have led many organizations to adopt ad hoc planning procedures that are difficult to scale, but ‘good enough’ for standard operations. Disruptions caused by the outbreak of COVID-19 have revealed that many of these practices lack the flexibility to endure a significant departure from the status quo and can incapacitate a company as a result. The value of maintaining contingencies for external disturbances has become abruptly relevant again. Nucleus expects that recent disruptions will drive a new wave of adoption for SCP solutions as the long-term return on investments becomes more apparent for all companies,” says Andrew MacMillen, research analyst, Nucleus Research.
How to reduce inventory right now
Reducing this financial burden is easier than you think. Start by fixing the five mistakes that trigger demand planners to replenish inventory too early:
1. Cushioned lead times
2. Fixed-cycle buying
3. High-buying multiples
4. Over-reacting to item checks
5. Demand forecasting inaccuracies
All of these mistakes can be fixed in a surprisingly short period of time using supply chain planning software, usually within 90 days. So, it’s a fallacy to think that now is not the time to make that move. It is the perfect time and it is the only sustainable choice.