Supply Chain Woes (CONT’D FROM PAGE 26)
that a return to the days of warehouses bulging with ex- pensive inventory is not in the cards. “Everybody has be- come accustomed to reducing costs by minimizing touch points, moving goods from the ship straight to the distri- bution facility and on to the customer,” says one operator. Indeed, cooperative efforts with suppliers and customers may well help bring back a greater emphasis on JIT. “I believe that the economy will eventually get back to that just in time concept as market disruptions lapse and the continued collaborative partnerships with vendors and suppliers remain a priority,” says Hannan. The Road Ahead Businesses face a conundrum as the world emerges from the pandemic: How quickly will demand increase for products and services, and will the increase be steady or erratic? The wrong answers can result in a pile up of inven- tory or lost revenues and customers. “The risk is especial- ly great for consumer and business goods requiring long lead times where businesses can’t easily turn the supply chain spigot on and off,” says Hannan. The solution, says Hannan, is to develop a comprehen- sive playbook to address possible disruptions and evalu- ate risks up and down the supply chain, then develop a plan to address those risks. And management must grap- ple with other unknowns such as whether the recent surge in the price of manufactured goods can be passed along to the consumer.
While businesses must pay the price for bolstering in- ventory levels, such costs must be balanced against op- erational expenses such as the need to pay higher prices for goods when a company scrambles to fill customer or- ders—or lost revenues when an unhappy customer jumps ship for a competitor. As they balance such costs, many companies are viewing higher cashflow on the shelf as acceptable. “Risk mitigation has become more important than efficiency gains,” says Manzella. Furthermore, three historic costs of inventories--inter- est, obsolescence, and shrinkage—no longer universally apply. “The interest rate you get for having cash in the bank now is approximately diddly squat,” says Conerly. And obsolescence would only be an issue if something were expected to go out of fashion. “Many products in short supply today are the same products as last year’s model and they are not going to go obsolete.” Shrinkage, he adds, is not an issue in some industries and in others can be controlled with requisite security steps. Cheap or not, inventory storage must be allocated se- lectively. “Companies need to be thinking, ‘what might be in short supply when we try to ramp up our production?’” says Conerly. “They may well buy a year’s supply of a rel- atively cheap item that is a small part of what a company uses but is vital to producing a finished product.” Despite the inventory mind shift, business owners feel
CONTINUED ON PAGE 30
28 September 20, 2021
www.boardconvertingnews.com
Made with FlippingBook - professional solution for displaying marketing and sales documents online