At times when supply chain disruptions are making it very difficult for manufacturers to properly plan their inventory levels, creative solutions become a necessity. Creativity helped many businesses survive the pandemic when multiple, unexpected scenarios presented themselves simultaneously. That could mean turning to alternative suppliers or manufacturing something else that is in demand.
Moving forward, you need to approach disruptions as though they are the norm and be prepared with strategies to overcome them.
Normally, you would rely on historical sales data to help determine change in consumer demand for upcoming seasons, depending on how your particular business is affected by seasons, holidays, or economic trends.
You could update your reorder point to modify your purchase order frequency and counts to strive for ideal inventory levels.
But when there are so many unpredictable problems arising, getting those amounts right becomes increasingly difficult.
Some businesses can move more products by kitting items, which allows them to move larger volumes. This technique works well for packaged and bottled items, but not clothing and many other types of products.
Items like clothing are often deeply discounted to move them off the shelves because they quickly become obsolete.
But having to deal with overages is costly any way you look at it. The better a job you do managing your inventory, the less likely you’ll face problems moving overages or lose money storing them.
The holding cost of inventory tends to be up to 30% of inventory costs. When you overstock, that percentage increases, eating up your profits. If you’re planning to order additional inventory because you are anticipating transportation issues, you have to balance the cost of storing that inventory to ensure you can still remain profitable.
Responding to Shortages
When you can’t get anything delivered, your production can come to a standstill. If you can’t produce, you can’t sell and if you can’t sell, you can’t pay your staff.
This week, news sources have been reporting that the lower southeastern states will soon face diesel fuel shortages which will shut down deliveries of all types of goods. Densely populated areas could soon face empty grocery store shelves, sparking the toilet paper hoarding reaction we witnessed during the pandemic.
If you’re sourcing materials from overseas, you run a greater risk of facing disruptions. The closer your supplier, the better your chances of on time delivery.
You may need to weigh the pros and cons of sourcing local materials. They may cost more per unit, but having a local source may just save you when your international supplier can’t deliver.
Can you arrange with a local delivery company to retrieve goods or rental a vehicle to get them yourself? These are serious considerations when you run the risk of long term shortages.
Now’s the time to consider creative responses to all types of scenarios. Whether that be buying stock in volume, securing additional storage space or manufacturing a slightly different variation of your normal product. Businesses that create their ways out of extraordinary circumstances survive to become extraordinary businesses.