Retailers are continuing to adopt ‘leaner’ inventory management ideals, and as a result suppliers are being forced to shoulder more of the inventory burden.
Not long ago, more than 100 logistics executives from across various consumer goods markets were polled about the challenges presented by their retail customers.
They said that their biggest problem was that they were expected to have their goods available ‘on demand’ in order to suit these lean strategies, and face added stock-keeping expenses thereby.
Retailers are not willing to deal with stock-outs, but neither are they willing to accept large shipments or long lead times. Meeting these demands could make operations unprofitable for many manufacturers.
Larger companies are not so badly hurt by this, mainly because of their already large warehousing capacity and the fact that the retailers aren’t buying less goods, just goods in smaller orders. The threat is to small and medium sized manufacturers and other producers. They just don’t have the resources in place to serve these new, lean retail strategies. Of the small and medium suppliers polled, nearly half cited this a major problem for them in the last few years. Even then, nearly 1/3 of larger companies said the same.
The problem is that leaner practices aren’t really more efficient when tracked across the entire supply chain. They just push the inventory management problems up the chain. While this is attractive down the chain, retailers should be aware that these gains come at a cost, and they must eventually end up paying more for goods delivered on this new kind of schedule.
Three strategies stand out as most effective for manufacturers and suppliers facing this inventory pressure.
First, suppliers are seeking out reliable, effective 3PLs to handle the warehousing and distribution overflow. Many 3PLs have the infrastructure and expertise to deal with the issue already in place, and can offer increased stock keeping capacity at a lower cost than increasing in-house capacity.
Second, if extra investment is available, advanced inventory management systems can produce more accurate demand forecasts and lower the inventory burden somewhat.
Lastly, collaboration and negotiation with retailers can spread the burden more evenly, if you have the market presence to demand it. Many retailers, though, will refuse to pay more than they feel they have to, especially if there are alternative suppliers out there.