Summary: In this article, you’ll learn strategies for adapting your inventory management techniques to help weather the COVID-19 tumult. These methods include adjusting forecasts, diversifying supply chain networks, and reevaluating existing measures of safety stock, lead times, and EOQs. Furthermore, an exacting approach to overstock deadweight will, in combination with the previously mentioned techniques, allow businesses to adapt existing inventory management practices to become more efficient and better suited to withstand uncertain times.
The rise of COVID-19 has caused major disruptions in industries all around the world, and inventory and manufacturing are no exception. As enterprises seek to contend with the coronavirus economy, flexibility and adaptability become key for businesses to reorient themselves and, ultimately, weather the pandemic. Here, we’ve listed the best practices that will allow companies to reduce the risks now inherent in the era of coronavirus trade and help them to become more resilient in the face of current and future challenges.
Diversify supply chain networks
If coronavirus taught us one thing, it was the importance of a diversified supply chain. The semi-paralysis of international trade proved that too many enterprises, of varying sizes and functions, relied too heavily on too few suppliers and manufacturers. It’s an unfortunate- and costly- case of putting all your eggs in one basket. This was demonstrated perfectly when much of the world locked down in response to COVID-19, creating a scarcity of pharmaceuticals in the U.S. as 72% of APIs are produced overseas. This was also the case with shortages of personal protective equipment (PPE) as much of the world supply is manufactured in China where PPE supplies were consumed as quickly as they were made. While these examples are more extreme and directly related to the pandemic, the message remains the same: overdependence on a select few supply channels can have dire consequences in the event of disruption to the market. The good news, though, is that something as simple as broadening a supply network can substantially lower risk during any kind of major disruption, not just the pandemic. A couple of ways to begin diversifying your supply chain are:
Creating relationships with proportionate suppliers
If you’re a small or medium enterprise that worries about the ability to leverage a much larger supplier, consider switching from a single major supplier to a handful of ones whose businesses are closer in size to yours. By doing business with more proportionate suppliers, you gain more leverage and also are in a better position to negotiate. Further, moving from just one large supplier to a few smaller ones helps to spread your risk across a few different channels so you’re not overly dependent on a single channel.
Look abroad: sell outside of your usual market
While mid-pandemic might seem like a bad time to expand outside of your existing market, it is important now more than ever to spread your risk across a range of sales channels. This is particularly relevant for businesses whose home markets have been hit particularly hard by the pandemic. If your business is one that has suffered losses as a result of the virus, a good way to begin is by comparing existing COVID-era markets against the markets where your business traditionally performs well, particularly before the pandemic hit. If, on the other hand, your business is one that is doing better as a result of COVID, consider using new growth to expand into other markets so that once the world returns to a more normal economy, your business is already established and thriving. Whether this means expanding internationally or regionally, every business should take advantage of the change in the landscape and use it as an opportunity to both reduce risk and create more opportunity in the post-COVID future
Re-evaluate your product lineup
Much like diversifying supply networks, inventory managers, particularly of manufacturing firms, should ask themselves, “Is what I’m offering in line with what consumers want right now?” For manufacturers, the question is one of efficiency: should raw materials be allocated to making different products? Early in the pandemic, when essentials such as masks and hand sanitizer were in high demand, hundreds of businesses were able to use their existing facilities to shift to production of such essentials. Unsuspecting companies such as Budweiser and Ford are even producing their own hand sanitizer products and ventilators. In the service industry, Uber has responded to the decline in ride requests by focusing their food delivery service, Uber Eats. Similarly, manufacturers should question whether their current production line-up is the most efficient use of their raw materials. Is there increased demand for a product that your materials or facilities could also produce? Is there more profit to be made in making alternative versions of your existing products? Retailers should also listen closely to market demand to see how they can adjust their product offering to better serve current trends. A combination of market research and forecasting should help you to determine if your business needs to change what it is producing or stocking in order to provide what customers want.
Adjust your metrics
It’s never been more important to make sure that your metrics are accurate and reflect the changes occurring in the business environment.
To protect against both demand and supply volatility, companies should increase their overall stock levels, especially safety stock. While increased stock will initially mean less free capital, businesses can balance it out by reducing other types of stock. Perishable goods, in particular, should be kept at lower levels to reduce waste and free up more capital for other, more reliable types of inventory. Doing so will lower the risk of out of stock in the event of supply chain disruption while continuing to provide the same levels of production and customer service.
Given the overall unpredictability in securing stock for your inventory, lead times should be increased to account for supply chain disruptions and other mishaps. In the event that your suppliers are proportionate in size to your business or at the very least are very responsive, ask them individually what sort of delays you can anticipate to get a better idea of how to adjust your lead time. If your suppliers are unlikely to respond to individual messages, apply a standard flat amount of time to each of your lead times to mitigate any disruptions to the normal flow of business caused by COVID-19.
Keep your technology competitive and up to date
Lastly, and perhaps most importantly, in order to help your business to weather the pandemic, enterprises must ensure that their technology is competitive and suits its needs. The coronavirus’ interruption of standard business practices has meant that more operations need to be managed manually and with great attention to detail. Therefore, it is critical that your software can automate and simplify all other aspects of business that are not as hands-on, freeing up time and enabling inventory managers to put their time and energy where it is most needed. In deciding which software works best for your business, consider which features you use the most in your existing system and see if there is another software that handles the same information and processes more efficiently. Ask yourself, is your inventory perishable? How much of your inventory management would you like to be able to automate? How often do you communicate with vendors and suppliers individually? Also consider the needs of your industry. Is your inventory mostly comprised of finished goods or raw materials? Once you’ve determined which system is best for you, make sure you’re taking full advantage of the available features to cut down on time spent on menial tasks and free up more time for more demanding tasks, which have unfortunately become more common during the course of the pandemic. With adequate inventory management systems in place, you and your business will be well equipped to follow through on other COVID-mitigating measures and ensure that your enterprise thrives despite the hardships it may face.
Go forth and conquer
By expanding your supply chain networks, updating your metrics, and implementing appropriate inventory management systems, companies can mitigate many of the hardships created by the current pandemic. So, though many companies are experiencing growing pains as they adjust to conditions in the business world, they do so in a way that not only protects against the circumstances created by the coronavirus but also against any variety of potential hardships that they may face in the future. By adjusting existing inventory management practices, companies give themselves the best possible chance to weather the storm and emerge from it stronger than ever and even more prepared for any possible hardships the future may hold.