Expert Advice on Managing Supply Chains in Turbulent Times – Case One
“With the Coronavirus situation unravelling, we have been forced to implement some short-term actions to secure our supply chains. Can you provide some quick recommendations to help increase our decision-making capabilities?”
Supply Chain Leaders are forced to rethink the entire supply chain network and act faster than ever. Mainly complex and global supply chains are exposed to disruptions because of the pandemic. In the situation where some of the suppliers were out, factories were closed, transportation hubs and warehouse functioning were limited, managers had to find rapid alternatives to secure their operations.
The pandemic’s stage varies in different countries, but overall, I think that supply chain leaders should focus on the following actions:
- Re-prioritize and focus on short-term inventory optimization to quickly improve the company’s cashflow. Focus on the SKUs that have the shortest OTC lead time or cut the safety stocks for non-performing inventory.
- Create business continuity and backup plans for contingencies in critical areas such as distribution or material sourcing. Communicate these plans with your critical suppliers and supply chain partners.
- Most importantly, properly educate staff on the COVID-19 symptoms and secure maximum preventions. Re-plan the shifts and have prepared alternatives, in case a sudden infection occurs.
Inventory management optimization in the current environment
Let’s start with the basics, i.e. an inventory optimization definition: Inventory optimization involves finding a balance between service-level goals and capital tied up in inventory across many SKUs while addressing supply-demand volatility. In the current environment, supply-demand volatility has risen significantly. Inventory managers should aim to address this volatility by seeking to optimize all the levels, aka echelons, of their supply chains in what is known as multi-echelon inventory optimization.
Effective inventory optimization starts with identifying slow moving or obsolete stock inventory.
What is slow moving stock? Slow moving inventory is stock that has not shipped within a certain time frame. In the current environment, many companies have more slow moving stock than they had accounted for in a slow moving stock provision.
What is obsolete stock? Also known as excess stock or excess inventory, obsolete inventory is unsold stock in an amount that exceeds anticipated demand. A company’s specific obsolete stock definition will depend on its own forecasts as to what amounts of inventory will or will not be sold within a certain time frame. When deciding what to do with excess inventory, companies will typically opt for excess stock clearance (selling excess inventory, usually at discounted rates, to other parties in bulk) or may prefer simply writing off obsolete inventory. How to write off obsolete inventory is a question for accountants; it may be expensed directly or offset the main inventory account in a contra account.
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