From hurricanes to pandemics to unexpectedly trendy vegetables, events that cause supply chain disruptions affect everybody—vendors, suppliers, stakeholders, employees, customers. But with the right supply chain inventory management, your business can inventory smarter and learn to expect the unexpected.
In this article, we’ll dive into the importance of inventory management in the supply chain. Then, we’ll touch on some of the major inventory challenges your company might want to prepare for. Next, we’ll offer some tried-and-true tips for preparing your business for turbulent times. And finally, we’ll cover how the right inventory management software can help your business stay organized—even as it enters uncharted territory.
The role of inventory in supply chain management
A supply chain is a network between a business and the suppliers that make and distribute the products, supplies, or services the business needs to operate. There can be many players in a supply chain, including warehouses, trucking companies, retailers, distribution centers, and producers.
Some businesses have simple, local supply chains. And other businesses have complex, international supply chains. Regardless of how large or small your company’s supply chain is, one thing’s for sure: inventory management is key to keeping that supply chain running smoothly.
Inventory management helps businesses maintain their supply chain in a variety of ways. Here are three of the most notable components:
1. Buying inventory
Whether your company stocks supplies, raw materials, or finished goods, a solid inventory management system ensures you’ve got the right stuff on hand to satisfy customer demand. Usually, buying inventory is influenced by current inventory levels and demand forecasting.
2. Maintaining inventory
Once that inventory arrives, your business needs somewhere to store it. That’s why the second component of supply chain inventory management is storage. For some businesses, that means a storage closet or maybe an off-site storage unit. And for other businesses, that could mean a massive network of warehouses halfway across the country.
3. Selling inventory
You’ve bought or created finished goods to sell—and you’ve stored it, too. The last step is to sell that inventory—and hopefully, turn a profit. Your business may sell inventory directly to customers on your website or face-to-face, sell it on multiple channels, or sell it to other retailers.
Of course, the role of inventory in supply chain management is simple on paper. But in real life, things happen.
In 2020, when the coronavirus pandemic surprised the world, supply chain issues plagued tons of businesses. From toilet paper to bicycles to free weights, customer demand for certain products skyrocketed. And supply chains, quite understandably, couldn’t keep up.
On the flip side, many businesses were stuck with stock that was suddenly unsellable. Some experts believe that $8 trillion of inventory was carried when businesses abruptly shuttered in March 2020.
Here are some circumstances and events that could cause significant inventory challenges:
Natural disasters, like earthquakes, tornados, blizzards, hurricanes, droughts, and extreme flooding
Unexpectedly prolonged heat waves or freezing cold temperatures, especially those that alter “seasonality” forecasts
New COVID-19 variants or other viruses
New pandemic-related restrictions that change human behavior and affect customer demand
Strikes or work stoppages at airports, ports, railways, roads, or other transportation hubs
6 tips to prepare your business for turbulent times
Now, the above list is anything but exhaustive. The truth is that any unexpected event can have a ripple effect on your supply chain. After all, inventory control is all about balancing “predictable, forecasted” customer demand with the cost of carrying inventory you can’t move right away. Most businesses can’t simply over-order “just in case.”
But you can employ inventory strategies to manage supply chain disruptions in the unfortunate event that they occur. Let’s dig deeper with these six tips for helping your business prepare for unpredictable times:
1. Perfect your demand forecasting
Demand forecasting is all about using historical data and inventory records to determine what customer demand will look like down the road. For some businesses, forecasting is relatively constant. But for most companies, there are seasonal changes to demand.
For example, school supplies, laptops, and backpacks are in high demand before the academic year begins. Auto shops may find themselves replacing more windshield wipers once the rainy season begins. And wine shops know that champagne sells around New Year’s Eve, and rosé flies off the shelves as the weather warms up.
While every industry and each unique business has its own best practices for forecasting customer demand, these tried-and-true tricks can help, too:
Identify different types of demand, from constant to sporadic to seasonal
Consider industry trends
Identify anomalies in your past usage or sales reports
Remember, demand forecasting is all about planning for what’s expected. It’s a foundational necessity that can help you plan for the unexpected; your business cannot prepare for a curveball without setting a baseline for what to order, how much, and when.
2. Calculate your safety stock
The next step is calculating your safety stock. Safety stock is a simple inventory formula that can help you determine how much extra inventory to keep on hand, just in case something unusual or unpredictable happens.
Maybe that’s a traffic jam, perhaps that’s a worker’s strike, or maybe it’s a shortage from a raw materials supplier. Whatever the reason your business can’t get what it needs, maintaining adequate safety stock can help protect you—at least for a little while you search for a solution.
To calculate safety stock, use this formula: (maximum daily usage x maximum lead time in days) – (average daily usage x average lead time in days)
Daily usage is how much of a product you use in a day, on average.
Lead time is the number of days it takes for your order to arrive once you’ve placed it. You can calculate lead time by adding your supply delay and reordering delay.
Reordering delay refers to any waiting time to place your order. Perhaps you place your orders on Mondays, but your supplier processes orders on Fridays. That’s a four-day reordering delay.
Supply delay is how long it takes your order to arrive once it’s been accepted by the provider. So, if that order gets processed on that Friday but arrives the following Monday, that’s a three-day supply delay.
3. Diversify your suppliers
Another way to protect your supply chain from unexpected events is to have a list of backup suppliers that can help you in a pinch.
Diversifying your suppliers doesn’t have to mean ordering a thousand things from a hundred different vendors. But your business might want to consider identifying alternative suppliers that can provide you with the products you need should your primary providers fall short.
Once you’ve identified those suppliers, you should complete the onboarding process as soon as possible. Yes, it’s a little extra effort upfront, but you’ll want to be ready to place an order at a moment’s notice.
4. Talk to your supply chain partners
Is everything running swimmingly in your supply chain at the moment? Then now’s the perfect time to assess it for flaws and vulnerabilities.
Don’t be afraid to speak openly about your worries with your partners when you find a concern. Remember, your problems are their problems. Together, your teams might be able to find a solution. Or you can replace the partner with a better candidate, or at least identify a backup provider.
5. Hire an expert to help you
Maybe you can’t figure out how to identify vulnerabilities in your supply chain. That’s totally okay. There are consultants, logistics experts, and third-party logistics companies that can help you figure out if your business might need a better strategy.
There are also third-party logistics companies that can handle all or most of your fulfillment issues, easing some of the burden and stress on your team.
6. Try inventory management software
Finally, you may want to consider switching to inventory software if your business manages inventory manually or with a spreadsheet. An inventory app automates many of the most time-consuming components of inventory management, all using equipment like phones, tablets, and computers.
When searching for inventory software, look for a solution that’s:
Accessible from anywhere, at any time—even if you’re nowhere near your inventory
Viewable and editable from phones, tablets, and computers your business already owns
A cinch to set up and learn—no all-day training or 100-page manuals required
Detail-rich and customizable enough to completely replace and outperform your current system
Ready to scan barcodes and QR codes right in the app—no clunky equipment required
Able to generate custom barcodes and QR codes for unlabeled stock
Great for teams, allowing customizable access to many users, including vendors and suppliers
Designed to create in-depth, shareable reports that help you forecast demand
Ready to alert you the moment you’re running low on a product, or it’s expiring or approaching warranty end
Sortly, a top-rated inventory app, was designed for businesses of every shape and size to take control of their inventory—for good. Ready to give it a try? Start your totally free, two-week trial today.
Lauren writes about inventory for Sortly. Her favorite thing to organize? Her comically large collection of stuffed animals.