Why supply chain managers are pushing for better inventory control

A recent report published by McKinsey & Company has highlighted the increasing inventory control challenges facing supply chain managers. The report found that most companies are planning significant changes to their inventory management strategy.

This fact could be called unsurprising – improving the supply chain is part of the job description, after all. However, it is the underlying challenges that managers are facing that underscore the importance of this statistic, with 95% of respondents noting footprint challenges during 2022.

Let’s look at these challenges and the steps that supply chain leaders are taking to mitigate them.

Rising challenges in inventory management

These are turbulent times for any industry reliant on a supply chain, and very few aren’t in some form or another. The world had barely recovered from the pandemic before economic uncertainties struck, this was swiftly followed by an increase in global tensions. The latter prompted G-7 nations to take steps to ensure strong supply chains for energy and food.

Overall, this was a perfect storm of circumstances that exposed an increasingly interconnected and global supply chain to innumerable challenges. These challenges have put supply chain and inventory control strategies under great pressure. Among the areas where these difficulties have been most pronounced are:

Global supply chain disruptions

While the increasing reliance on global supply chains has undoubted benefits, world events have exposed the inherent weaknesses that can suddenly occur at any link in the chain. Trade wars, the pandemic, and ongoing wars in key areas are all causing unprecedented supply chain difficulties.

Among the key points to consider are:

• Sudden shortages and delays: Disruptions often lead to critical shortages of materials and unexpected delivery delays, impacting production schedules and market availability.
• Increased operational costs: The ripple effect of disruptions can significantly increase transportation and production costs, affecting overall profitability.
• Dependency on key nodes: Many supply chains have critical dependencies on specific geographic regions or suppliers, making them particularly vulnerable to regional instabilities or policy changes.

Technological Advancements and Complexity

Technology always advances – it is the nature of the beast. However, in the past couple of years, the speed of this advancement has been almost unprecedented. While the ultimate aim is to streamline supply chains, the initial complexities and the need to adapt rapidly to a fast-evolving landscape have raised significant challenges.

Key among them are:

• Integration challenges: Implementing new technologies often requires overhauling existing systems, which can be disruptive and costly. Ensuring compatibility and smooth integration is a constant challenge.
• Cybersecurity risks: With increased reliance on digital tools, supply chains become more vulnerable to cyber threats. Protecting data and operations is an ongoing concern.
• Skill gaps: As technology advances, there is a growing need for skilled professionals who can manage and optimize these new systems. The pace of change can lead to skill shortages and the need for continuous training and development.

Consumer Demand Fluctuations

Predicting consumer behavior has always been a fickle business. This point is even more relevant in today’s challenging circumstances. Forecasting supply and demand trends has never been an exact science, but the current state of world affairs has thrown more than a few spanners in the works.

Among the key challenges facing supply chain leaders are:

• Predicting trends: Rapid changes in consumer behavior make it difficult to accurately forecast demand, leading to potential overstock or stockouts.
• Seasonal and market variability: Demand can vary significantly due to seasonal trends, market shifts, or sudden changes in consumer preferences, requiring agile and responsive inventory strategies.
• Response time: The speed at which companies can respond to changes in demand directly impacts their ability to maintain service levels and customer satisfaction. Delays can result in lost sales and damaged relationships.

Cost Pressures

The efficiency of the supply chain and inventory management strategies have always been a key factor in managing costs. This is especially relevant in today’s trading landscape where margins are ever-tightening and fluctuating prices are making remaining competitive a supply chain priority.

Among the key difficulties facing supply chain and inventory leaders are:

• Fluctuating input costs: Raw material and component costs can vary widely due to market conditions, affecting the overall cost of goods and necessitating adaptive pricing strategies.
• Logistical expenses: Transportation and warehousing costs are significant factors in the total cost of inventory. Optimizing these logistics can lead to substantial savings and more competitive pricing.
• Economic and market forces: External economic factors, such as inflation, currency fluctuations, and trade policies, can have a profound impact on operational costs and require constant vigilance and adaptability.

How supply chain managers are tackling the challenges

Supply chain and inventory control challenges are ever-present and supply chain managers are more than well-versed in dealing with them. The very fact that even during these turbulent times most people went on about their business without worrying too much about what was on shop shelves, is a testament to this.

However, even seasoned supply chain professionals are pushing for better inventory control to help maintain this increasingly delicate juggling act. Among the methods they are implementing are:

• Adopting agile methodologies: Managers are embracing agile and flexible approaches to supply chain management, allowing for quicker responses to market changes and disruptions. This includes adopting lean inventory practices and just-in-time production to reduce waste and increase responsiveness.
• Investing in technology and innovation: A key strategy is the investment in advanced inventory management software solutions and technologies. These tools offer enhanced visibility, predictive analytics, and automation capabilities that streamline operations and improve decision-making.
• Building resilient supply networks: To combat global supply chain disruptions, managers are diversifying suppliers and increasing the robustness of their networks. This involves nearshoring or reshoring activities, as well as developing strategic partnerships to ensure continuity and reduce risks.
• Focusing on sustainability and efficiency: There is an increasing emphasis on creating sustainable and cost-effective supply chains. This includes optimizing logistics, reducing carbon footprint, and implementing environmentally friendly practices.
• Enhancing skills and training: Recognizing the importance of a skilled workforce, managers are investing in training and development programs to equip their teams with the necessary skills to handle advanced technologies and complex supply chain scenarios.

From the bread at your local convenience store to that parcel you ordered from an online store, every ingredient, component, and even the packaging has all been part of the supply chain at some point. The fact that we can still shop happily for just about anything is down to the hard work and ingenuity of supply chain managers and robust inventory control strategies.

Keeping tabs: The importance of inventory control

The supply chain has always been vulnerable to a range of threats and with chains becoming longer and increasingly convoluted, the range and nature of these threats is increasing. A fact illustrated by the disarray caused by the current crisis in the Red Sea.

While this can hardly be considered good news, there is plenty to be positive about. The increasing use of agile methodologies, advanced software, technology, and more resilient networks are all being used to ensure inventory control strategies are keeping consumers happy.