The first two parts dealt with supply extremes (either dire inventory shortages or costly overstocks) and the mass exodus to e-commerce, which has created dangerous price transparencies for distributors.
Today, I’ll wrap up with a cure for the problem of misaligned inventory – a costly by-product of long lead times, supplier shutdowns, erratic demand from stay-at-home orders and other effects of COVID-19 on supply chain.
Balancing Inventory Was Always Hard
Distributors have always grappled with misalignment between inventory on-hand and demand for it. Especially at a time when the bar is high for supersonic delivery speeds and consumer convenience options, companies find themselves spending way too much money to get the right goods to where they need to be on time.
Now it’s Complete Chaos
Coupled with rising transportation costs and a shortage of trucks aggravated by increased border controls, distributors are having to choose between 3 evils:
- Invest a lot in extra inventory to avoid stockouts
- Take costly corrective actions to transfer inventory
- Or lose sales/customers
You don’t have to settle for any of these. There is an in between.
What is the Cure?
Other than a really great band, the cure to misaligned inventory caused by COVID-19 is multi-echelon inventory optimization (MEIO).
MEIO frees up cash by knocking down siloes and establishing the most precise, cost-effective allocation of inventory across your network. It calculates the daily need for inventory across the supply chain based on both customer demand and the unique configurations and constraints that impact the actual ordering of goods.
There are a number of things MEIO solutions help you do:
- Understand the optimal inventory levels across locations and echelons
- Reduce inventory and logistics costs
- Get accurate demand signals to forecast correctly up the supply chain
- Use accurate lead times between echelons
- Communicate precise data with your company and with trading partners
- Leverage full network visibility
- Coordinate demand to optimize events such as promotions
Learn more about Multi-Echelon Inventory Optimization solutions here:
Back to Part 2