We’re taking some time to focus on key challenges to your organisation’s resilience. As we highlighted last week, in order to increase resilience and build the momentum required to promote recovery, vulnerabilities around the supply chain must be addressed. The most significant threats exist in the following areas:
- Demand planning and inventory management
- Financial fragility
This week we’re going to consider the problem of excess inventory, how it is likely to impact your organisation’s
resilience and what steps you can take to counter this negative effect.
With the economy struggling, consumer spending is down. This means that everyone is having to fight a lot harder to occupy their place in the market. The emerging suppliers who have either pivoted their offering or are entirely new players seem to be pushing hard on offering innovative and lower cost products and distribution options, leading to even more competition in a scarce environment.
At the start of lockdown, there was a phase when customers would accept a delay on fulfilment of orders. That grace period has well and truly passed however, and we are now back to operating in a world of expectations of immediacy. Stock-outs were previously costly but now they’re completely unacceptable from the consumer point of view.
This pressure for delivery at speed creates the need for stock in more locations in order to guarantee fast turnarounds. The widening of stock availability to guarantee order fulfilment inevitably leads to excess holdings.
The cost of excess stock
Surplus stock has a direct impact on your cash flow and working capital. There are three elements to this:
- The initial outlay when buying the stock
- Ongoing holding costs of keeping unnecessary stock
- The cost of lost opportunities through having working capital tied up.
Optimising inventory management
In order to successfully manage inventory at a global level, full visibility of warehouse management is required across all locations. Your team also need the capacity to manage complex interrelationships across the supply chain. Automating inventory forecasting with S&OP software like AGR fulfils both of these needs and the resulting supply chain optimization will greatly strengthen your organisation’s resilience.
Through effective inventory management, businesses can reduce their stock holdings by an average of 10–30%. The immediate impact you will see from this process is the release of a lot of capital, very quickly, further strengthening your position as you reduce your financial fragility through having more cash on hand.
Let us show you the impact that the AGR software can have upon your control over excess inventory levels – get in touch today to see just how much of a difference it could be making to your resilience.