7 Steps to manage supply chain disruptions and optimise your inventory
Optimise your inventory by understanding how supply chain disruptions can affect your business.
Inventory is essential to the day-to-day operation of your business. If you don’t have the right stock on hand it becomes increasingly difficult to secure sales. The COVID-19 pandemic has introduced significant and long-lasting disruptions to global supply chains and customer demands. Understanding how these challenges can impact your business allows you to adjust your strategy and optimise your inventory.
What are the challenges that affect stock distribution?
Businesses across Australasia currently face a range of supply chain challenges, that can influence sales and disrupt stock holdings.
Supplier lead times:
Most businesses are experiencing an increase in supplier lead times. This affects your business’ ability to provide customers with the right stock at the right time.
Factors that contribute to extended lead times include:
- Delays in placing orders,
- Inefficient supplier management,
- Port delays and lockdowns, or
- Inaccurate forecasting.
Freight companies are increasing their prices to cope with the increasing operational costs, port costs, and availability as demand escalates globally. High demand for imported goods and materials, also leads to increased air and sea freight prices.
A shortage of raw materials
The unprecedented demand in the supply chain over the past 18 months has taken its toll on the shipping container supply, resulting in fewer available around the world. Coupled with the lockdowns and restrictions on warehouse capacities in the countries that supply raw materials, demand has outstripped the supply.
What does this mean for Australasian businesses?
- Australia and New Zealand rely heavily on air and sea freight services to import goods. If there is a delay in manufacturing, port closures, or blank sailings (when the carrier cancels a port or entire shipping route), businesses are more prone to experience stock-outs and longer buying cycles.
- There are no other options for importing goods – ANZ business must pay these increased costs.
- The shortage of raw materials globally has shifted manufacturers to look locally or source other options for similar materials.
Here are seven tips to help during supply chain disruptions:
7. Monitor inventory risk
Without an understanding of how well your suppliers are delivering against stated lead-times, and the accuracy of the forecasting process, it can be increasingly difficult to establish the appropriate level of inventory to hold. With unclear lead-times you increase the risk of under or over-stocking your items. One of the first steps to optimising your inventory is to measure and understand these elements.
6. Set inventory levels in line with risk
After establishing the risk in your supply chain, set the level of safety stock to buffer this risk and achieve the desired fill rate target. You would need to create an algorithm to compute this, by item and by warehouse, or use sophisticated inventory management software like NETSTOCK to do this for you.
5. Open communication with suppliers.
Suppliers have also been affected by global disruptions. Review your current suppliers and, if necessary, source new reliable suppliers. Ensure you have regular and set communication channels to understand their lead times and ordering changes as they occur in real-time. This way, you can align your stock reordering levels and reduce your chances of stock-outs.
It is also essential to monitor delivery performance to quickly identify and rank the vendors with the worst delivery performance.
4. Encourage more team collaboration.
It requires a team effort to achieve accurate inventory management. The inventory planner or supply chain manager generally makes the final decision. However, they will need to consult with both sales and marketing departments to get true visibility on future sales projections, industry trends, and any upcoming marketing campaigns.
3. Classify your inventory.
Correctly classified inventory can be broken down into manageable categories such as obsolete, non-stocked, and working stock. Your stock items are then classified further when you set your inventory policies, and by looking at sales velocity and margin contribution. Having these classifications simplifies your stock reporting and refilling policies.
2. Focus on monitoring and improving forecast accuracy
In challenging times it's vital to have an accurate forecast. Accurate forecasts help align your inventory levels with the demand fluctuations. By using a combination of statistically generated forecasts combined with market knowledge your forecasts help to reduce stock risk.
1. Invest in inventory management software.
Using Excel spreadsheets is a standard solution for businesses to use when managing their inventory. If you need to track large quantities of SKUs or stock items that also need to move between warehouses, using an Excel spreadsheet increases the likelihood of data entry errors. Unlike spreadsheets, NETSTOCK provides real-time visibility, supplier performance tracking, and is easily scalable as your business grows.
Want to optimise your inventory?
Join our inventory discussion on Thursday, September 30th, 2021, and learn how NETSTOCK, a cloud-based demand planning solution can help you navigate supply chain distributions and reduce inventory risk.