There are few things that make us happier than having certainty and clarity - it's just so nice when everything goes the way it’s supposed to.
When it comes to supply chain management, a lot of wholesalers and distributors have little choice but to go on face value. If you’ve got a lot on your plate already and limited resources, it’s one less thing to think about when you can bank on an order being delivered when it’s meant to.
We trust statements like "the lead time is X weeks" because it's clear, reassuring, and allows us to get on with our other jobs.
Most of the time, you’d be right to put your faith here.
There are lots of components in the supply chain, but let's have a look at shipping. Modern ship captains will tell you that the transport of goods by sea is a well-oiled process. In fact, I recently read about one seafarer who ferried oil between Qatar and Japan and last had shore leave 50 months ago. Ships and many of the seafarers on them run with robot-like efficiency.
Currently there are more than 5000 ships carrying 90% of the world’s transported goods and in turn our dependency on shipping for running our business has escalated. Shipping has fueled globalisation and made many business models viable that couldn’t have existed just a few years ago.
So as our need for shipping grows, what happens when there’s a supply chain disruption?
A disruption is very opposite of the certainty that we crave. It can make a mockery of our bias towards supplier’s stated lead time.
There are dozens of examples of supply chain disruption. A couple of them in particular won't have escaped your attention, even if you’ve been living under a rock for the past year.
Most recently, the blocked Suez Canal incident cost global trade US$400m every day in lost trade. And Covid caused unprecedented shortages, impacting everything from oil to vital medicines.
Even this week, there was a report about an cargo ship being on the wrong end of a missile. Incredulously, it carried on its course regardless, but it goes to show that the sea is a volatile caregiver for your inventory until it reaches your hands. Such unpredictability clashes with any bias towards any idea of certainty.
The moving of goods is a risk and the people that miss out when it goes wrong are your customers - and that means you're missing out too, both because of lost revenue due to stock-outs and because your customers are going to look elsewhere.
If you want to gain a reputation for delivering on time and banishing backorders to oblivion, it helps to take another look at your inventory.
Your inventory management system will tell you what you have on hand and what you have on order. Both of those values give you a historical snapshot - inventory you’ve already received; an order you’ve already placed.
The future is hard to predict, but you can give yourself tools that make it easier to plan for different scenarios and limit your exposure and risk during a supply chain disruption - and give your company an edge over your competition.
Let’s say, for example, you want to focus on your fastest-moving stock and your top revenue-creating stock. In other words, this is the inventory that’s going to cause you the most heartache if a disruption occurs.
There are a number of variables you could play with for these items that will give you a higher degree of certainty that your inventory levels will withstand any hiccups.
Firstly, rather than relying on lead time, you could experiment with using a different forecast period. If you predict demand on a lead time of 60 days, you could switch to a forecast period of 90 days to ensure you have enough stock for an additional 30 days.
Alternatively, you could make amendments to your buffer stock. At StockTrim, we recommend you set the service level for buffer stock at 95%. This means that in 95% of cases, you will have enough buffer stock to cope with unexpected peaks in demand. You could increase this 96, 97, or 98%, for example, which limits the risk you’ll go out of stock (but be careful not to order so much buffer stock that you end up with excess inventory you can’t move).
Thirdly, if you’re anticipating growth and want to shield your business from disruptions, you could configure your forecast to include projected growth by adding this as a percentage into your calculation.
As you can see, you don't need to leave yourself as high and dry as a beached ship when there's a supply chain disruption. Tools like StockTrim can help you get ahead of your competition and give you extra assurance that you're carrying adequate stock to cope.
