Why Demand and Inventory Management is all About Balance

During this ongoing era of disruption, attention in the supply chain space has turned to resilience.

Businesses are continuing to explore alternative options for sourcing, storage, transit routes and delivery mechanisms in what is, in certain cases, a desperate bid to ensure their operations can withstand disturbances.

If it was not crucial before, taking the right approach to demand and inventory management has, over the past few years, become utterly integral to well-functioning supply chains.

In fact, one can rewind the clock to the dawn of the COVID-19 pandemic to find a pivotal turning point in this space.

In its latest report covering major supply chain trends and challenges, Efficio stresses that, prior to the pandemic, just-in-time (JIT) inventory management was seen as a cornerstone of efficient supply chain practices due to its ability to help minimise working capital, enhance flexibility and optimise cash flow.

However, as sweeping restrictions and lockdowns were enforced, its vulnerabilities were exposed, with a reliance on minimal buffer stock levels leading to widespread supply chain disruptions.

“Things are much less challenging today than they were at the height of the pandemic,” asserts John Carter, Principal Consultant at Proxima, the specialist procurement and supply chain consultancy forming part of Bain & Company. “However, while the day-to-day panic and overall scrambling that supply chain teams were doing has significantly decreased, the most challenging question teams are grappling with today is, ‘what now?’.

“During the pandemic, inventory management shifted drastically from JIT to just in case (JIC). While there’s been a slight pendulum swing back towards efficiency and lean practices during this uncertain economic time, there’s also a lingering concern that major disruptions could potentially reoccur – similar to, if not worse than, COVID-19, which could greatly impact companies with insufficient inventory.”

Inventory management complicated by disruption

Saul Resnick, CEO UK&I at DHL Supply Chain, is well placed to paint a picture of the demand and inventory state of play.

He reveals that, as a result of recent supply chain disruption, seasonal stock is arriving earlier than in previous years, meaning many businesses are looking for additional storage space.

Meanwhile, in the UK specifically, a largely underwhelming summer has added further complications to inventory management, with a surplus of summer stock in stores and warehouses.

Saul explains: “While some of this can be stored until next year, incurring additional costs, fashion and trend-led items will need to be boosted with discounts or sold off through other channels to make way for incoming autumn, winter and Christmas stock.”

He also observes that, despite ongoing disruption, the anticipated shift to nearshoring – certainly from a UK and Europe perspective – has failed to materialise.

“Within retail,” Saul goes on, “we’re still seeing a high volume of stock coming from East Asia, highlighting that businesses aren’t focusing on localising their operations but instead on establishing fluid, agile supply chains that have the scale and capacity to adapt and cope with challenges as they arise.”

Highlighting the ongoing dilemma faced by supply chain managers, John says these leaders are endeavouring to strike a balance between lean inventory to satisfy finance teams and managing higher inventory levels to meet operational needs.

He adds: “In addition to this, there’s the increased complexity in forecasting demand due to shifts in how consumers or companies order. To curb this, supply chain teams must be more responsive with less certainty.”

The importance of integration

Supply chain has, historically, been one of the most fragmented business functions.

This reality means supply chains themselves are thought of as linear, with each activity connected to and in sync with the next immediate activity.

Increased integration of supply chain practices – including demand and inventory management – is widely perceived as being key to changing this.

“To achieve integrated demand and inventory management systems, we need to shift towards collaborative and autonomous supply chains,” says Ashish Chaturvedi, Practice Leader at HFS Research.

“This involves connecting each function and providing visibility of other functions with minimal human dependency.”

Saul points out that, by fully integrating demand and inventory management systems with wider supply chain management, from warehouse management to risk management, businesses can create end-to-end visibility across their network.

Often, the result is enhanced operational efficiency, enabling proactive and informed decision-making based on accurate data on capacity, demand and inventory.

Shedding light on how his own organisation is mastering this, Saul continues: “At DHL, we’re leveraging digital solutions through our warehouse management system which provides the consistent and precise inventory levels we need to make accurate assessments of delivery capability into different markets.

“At the same time, our demand planning technology supports us to better forecast supply requirements, enabling us to align and adjust to global trends and macroeconomic events.”