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Supply Chain Disruptions, Holiday Shopping, and What This Means for Excess Inventory

The final quarter of the year is in full motion, and companies are still feeling the squeeze of supply-chain disruptions. A perfect storm of increased demand, worker shortages, shipping clogs, and supply deficiencies brought about unparalleled uncertainty in the supply chain. Businesses that had slashed their inventory to cut costs and increase profits were unprepared for customer demand and supply shortfalls. 

Continued Supply Chain Disruptions

Perhaps surprisingly, despite the supply-chain challenges businesses faced during the pandemic in 2020, a survey by ACG Global found that only 18% of companies have implemented technology platforms to manage their supply issues. Demand from consumers excited to celebrate the holidays after last year’s confinement is expected to fuel a 7% to 9% increase in sales this holiday season. 

Unfortunately, increased demand — combined with continued shortages in raw materials and labor in addition to shipping delays — is setting retailers and consumers up for a supply chain bottleneck. 

The Bullwhip Effect

The complex, global nature of the supply chain makes it vulnerable to disruption from many different factors. The factories, distribution centers, and shipping companies that form this interconnected web rely on the process of just-in-time manufacturing pioneered by Toyota in the 1970s. Although this process has allowed businesses to cut costs while meeting consumer demand, the pandemic exposed weaknesses in the system. 

The lack of responsiveness and agility has left retailers dealing with shortages and then rebound excess inventory, a condition known as the “bullwhip effect.” When retailers experience higher demand, they increase their orders from wholesalers, who bump up their orders from manufacturers. This leads to manufacturers ramping up their production. 

Many times, however, as in the case of the toilet paper shortage, consumption has remained the same. These supply chain ripples leave companies with excess inventory after consumer demand has decreased. This is exacerbated by not having real-time visibility of where inventory is sitting. 

 

Holiday Season Inventory Planning

Supply chain headaches are likely to follow brands and retailers into the holiday season, despite the ample lead time. The global effects of the continuing pandemic will make manufacturing and delivery of goods take longer than before. 

Last-minute online shoppers will also complicate the equation. Shipping delays are likely to lead to last-minute shoppers being forced to settle for what they can find rather than what they want.

After the holidays, businesses will likely be confronted with either shortages or excess inventory, or possibly both. While the lost profits from shortages are dismaying, the costs of being left with too much inventory can be even worse. These include:

 

  • Storage costs
  • Potential insurance costs and losses related to stored inventory
  • Tying up capital that could be used elsewhere

The new reality for businesses is that their supply chain management must be able to deal with fluctuations from consumers and suppliers, integrated online and in-person shopping, shipping interruptions, periodic spikes in demand, unexpected closures, and worker shortages. 

It’s imperative that brands mitigate their risk by finding solutions that bring inventory visibility to their supply chain at all levels. The ability to plan, predict, and work around uncontrollable supply chain issues has to be incorporated into a company’s long-term risk-management strategy. 

Long-Term Supply Chain Visibility Strategies

The first step in implementing such a strategy involves being able to identify and locate raw materials, components, products, and specific orders throughout the entire cycle from supplier to customer. Businesses now have to contend with risks related to the continuity and backup plans of their suppliers. While some factors can’t be controlled, being able to analyze and leverage data and trends allows companies to manage those risks. 

Artificial intelligence-powered solutions give brands the supply chain visibility they need in order to have control over inventory at every stage. Dealing with slow-moving or excess inventory earlier in the product life cycle will decrease recovery time and free up capital. 

This level of fine-detail processing can only be accomplished with a digitized solution that provides an understanding of where inventory is located, how it’s performing, what up-to-the-minute levels are, and its ultimate destination.

Optimize Your Inventory and Get Ahead of Supply Chain Disruption

INTURN is a leader in supply-chain visibility solutions, providing brands with full inventory visibility across their supply chain. Our tools help maximize recovery by optimizing slow-moving and excess inventory. Centralizing your data helps streamline your workflow and reduces redundant work and inaccurate product information. 

Reach out today to find out how INTURN 360 can help you build a complete go-to-market strategy to boost your bottom line.