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Article:

How inventory analytics can fix COVID-19 supply chain disruption

07 May 2020

Kamal Prasad , Partner, Technology Advisory |

Are you experiencing supply chain disruption due to COVID-19? In this article, Kamal Prasad, a Partner in our Technology Advisory team discusses how inventory analytics can help businesses during this time by taking a holistic approach to risks.

There’s no doubt that ongoing disruption in supply chains has created a challenging environment for many businesses.

Physical distancing requirements and lockdowns abroad have not only made it more difficult to obtain and process critical goods and materials but have also impacted the way goods and services are delivered. In addition to this, sudden shifts in consumer demand and behaviour - such as panic buying and online rather than in-person shopping - have led to shortages of certain goods while an excess of others.

How is COVID-19 disrupting supply chains?

  • Demand issues - Changing buying behaviours is creating a surge in demand and forecasting errors. Notably, there’s been changes in product mix/volume, a shift to online purchasing as well as a reduction in household spending due to current economic conditions.
  • Transportation and supply issues –  Greater disruption and uncertainty has led to longer lead times or a complete breakdown in the supply chain of products sourced overseas.
  • Manufacturing issues – New and changing health and safety requirements affect staff availability and rostering, for example, physical distancing, health checks and quarantine, fatigue management.
  • Financial issues - Balancing business priorities as many businesses must manage these supply chain challenges at a time where there is a strong focus on cost management and cash flow.

To find out how you can manage the effects of COVID-19 on your supply chain read our article on the one thing supply chain executives should do right now in response to COVID-19.

 As such, many businesses are now facing a new challenge - how to effectively respond to sudden changes in supply and demand at a time where both market uncertainty and cash flow pressures are high?

This is where leveraging your data with inventory analytics can help.

What is inventory analytics?

Inventory analytics is a data analytics tool which analyses a business’s inventory patterns and behaviours to provide the business with the real-time information to make fast, informed and strategic decisions about their inventory. This helps businesses to quickly respond to sudden changes or disruption in demand or supply, minimising the cost of disruption to both the businesses and the customer

It can also help businesses to identify areas in their inventory management processes that can be improved to become more efficient and effective – especially from a cash management perspective.

How do you know if your inventory is the ‘right size’ for your business?

The following questions can help you understand if there is an opportunity to manage inventory more effectively:

  • Do you have capital tied up in inventory preventing you from better utilising your cash?
  • Do you have the ability to rapidly re-plan your inventory in response to changes in financial forecasts?
  • Are poor fulfilment rates and out of stock issues leading to loss of sales?
  • Can inventory be quickly rebalanced based on changes in demand or buying channels?
  • Is your supply chain geared up to manage longer lead times or a complete breakdown in the supply of globally sourced items?
  • Is there organisation-wide visibility and do you have plans in place to manage inventory risks such as ageing stock, excessive stock, obsolete or damaged stock?

Four tips to improve your inventory management today

  1. Strengthen cross-functional planning Cross-functional coordination, communication and planning are critical for ensuring efficient and effective inventory management. This is especially true during periods of uncertainty where sudden changes to one function of the business – such as a sudden spike in sales of a certain product - can have significant flow-on effects to other areas e.g. production and purchasing departments.
    As such, businesses should look to set up a supply chain response team, develop a cross-functional supply chain plan and hold regular cross-functional meetings to ensure new information is shared quickly and everyone in the business is on the same page. Leveraging supply chain analytics and inventory modelling is also vital to support operational plan adjustments and ensure informed decision making when it comes to inventory.
  2. Strengthen relationships with your suppliers, retailers and partners – Building closer relationships with your suppliers as well as those you supply, helps you to understand delays your supplier may be experiencing and how it affects your business. It also helps you find other suppliers or substitutes for critical goods. Good relationships built over the long term both up and down your supply chain will also assist when it comes to negotiating supply contracts.
  3. Avoid waste at all costs – Wasted inventory is lost money and in some cases can even be costly when it comes to its storage and disposal. In the circumstance where a business has excess stock or in-date stock unable to be sold due to the effects of COVID-19, they should look to incorporate it into existing or new products and services if possible. If an in-date product is unable to be incorporated in the business another way, the business may want to consider donating it to a charitable organisation.
  4. Consider simplifying your offering – If demand across your products or services has, or looks to be declining, simplifying your offering can be an effective way to reduce your inventory and storage costs. This could be an opportunity for your business to re-focus on its core products and services and how their delivery, quality and production can be improved.

How can we help?

Our Technology Advisory team offers a full suite of inventory analytics that are tailored to meet your specific business needs, challenges and goals. We take a holistic approach incorporating scientifically established inventory targets, tactical inventory reduction and ongoing actions and benefits monitoring.

Several ways we can use inventory analytics to support your business include:

  • Translating financial forecasts to strategic inventory plans for future planning
  • Scenario planning to help businesses understand potential cash flow impacts
  • Modelling the impacts of supply variability due to lead-time uncertainties, supplier performance or third party logistics and transport issues
  • Determining the best possible service level based on a target budget
  • Enabling differentiated service level, taking into account the fact that not all products or customers are equal
  • Developing and reviewing inventory targets based on demand variability, including changing buying patterns (e.g. panic buying) and forecast errors
  • Identifying areas of over and underspending on procurement of goods to help businesses reduce costs
  • Identifying obsolete stock based on ageing, usage and product substitutions
  • Comprehensive benchmarking to determine how efficient and effective your inventory management is compared to other businesses
  • Providing inventory level recommendations by product, location, customer and type (Raw material, WIP and Finished Goods).

For more information on inventory analytics or on how your business can improve its inventory and supply chain management, please contact our Technology Advisory team.