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Inventory Reduction is Your Best Business Defense Against COVID-19
Given COVID-19 and the current economic uncertainty, my bet is that your most pressing business worry right now is how the ___ to free up cash.
You got it… inventory.
Inventory reduction is the most powerful strategy you can employ right now to defend against the long-term business impacts that are keeping you up at night. Particularly if your customer base is composed of industries hard hit by COVID-19 restrictions.
Different Industries, Different Pains
Blue Ridge has been speaking with a lot of wholesale distributors and retailers in a variety of industries. Their demand forecasting challenges vary widely, depending on whether they supply to businesses in distress – like retail shops and restaurants – or businesses that have more demand than they know what to do with:
- One distributor we work with called last week saying their home gym equipment orders went from their normal 30 per week to an astounding 660 per week!
- Another customer that distributes tires reported demand down 50% and their first reduction-in-force in over 100 years.
Some Best-Ditch-Effort Strategies
Distribution businesses are making some decent operational adjustments, such as:
- All non-DC/warehouse employees working from home
- Mandated health guides put into force for those who can’t WFH
- Using Will Call, order by phone and curbside pick-up
- Getting flexible with collections, such as extended invoice or spread payments
- Redeploying trucks or manufacturing facilities to address high demand
- Resetting rebate levels with suppliers
- Watching for competitors going out of business and reaching out to their customers
Inventory is your most expensive asset. I can’t stress that enough, so I’ll say it again. Inventory is your most expensive asset.
The average wholesale distributor carries around 20% more inventory than what they need. So it makes sense that an inventory reduction (even a small one) will bring the biggest and most immediate improvement to your bottom line.
How to Reduce Inventory Right Now
Reducing this financial burden is easier than you think. Start by fixing the 5 mistakes that trigger demand planners to replenish inventory too early:
- Cushioned lead times
- Fixed-cycle buying
- High-buying multiples
- Overreacting to item checks
- Demand forecasting inaccuracies
All of these mistakes can be fixed in a surprisingly short period of time using supply chain planning software, usually within 90 days.
Blue Ridge customers typically see 10-20% inventory reduction while improving customer service levels 3-7% levels.
We can help you start buying smarter to free up incredible amounts of capital for your organization, without losing any points off of your customer service levels.