The forthcoming hurdle in supply chain management is no longer scarcity; it’s an overabundance of inventory.
The concept of ‘inventory momentum’ – combining current inventory levels with the rate of inventory change – is key to addressing this issue. This metric allows leaders to proactively manage excess inventory and prevent future overstocking. Reflecting on the early pandemic days in March 2020, we recall the scramble for essentials and empty store shelves. Companies responded by placing large orders, leading to a situation where demand seemed infinite. Today, we face the opposite challenge – managing an excess of inventory.
One manufacturer is leading the way in tackling this excess inventory by strategically managing inventory momentum. The results?
- Reduced incoming materials
- Accurate planning parameters
- Disposed obsolete inventory
- Collaborated with customers
- Prioritised revenue for customers
So how do you manage this challenge? Leaders must reconsider the narrative of “infinite” demand. Every demand spike will eventually lead to an inventory glut. Companies placing orders must temper that demand with a dose of reality. If suppliers maximise revenues and OEMs order more than what they can reasonably sell, contract manufacturers get stuck in the middle. This dynamic isn’t healthy or sustainable. Value chain partners like OEMs, contract manufacturers, and suppliers need to be aligned on optimising inventory. Suppliers should be able to redistribute excess components that are still perfectly useful for another application. Getting products into the hands of people who need them is ultimately good for everyone. This shift in supply chain dynamics underscores the importance of creating a more sustainable inventory ecosystem.
How do you foresee the role of ‘inventory momentum’ in shaping future supply chain practices?