Companies are trying all sorts of ways to get rid of bloated inventories at a time when they typically stockpile items for the year-end holiday season.
Delays in fulfillment from Asian factories due to congestion at ports and other parts of the transportation system meant that many retailers were stuck with items that could not be sold because they missed the selling season.
Fragile supply chains
As supply chains became more volatile and uncertain, companies ordered more of everything «just to be safe,» he abounded.
This practice is a variation on the consumer hoarding habits that became evident during the height of the pandemic. As a result, when deliveries arrived, inventories skyrocketed.
Consumers changed their preferences. Faced with rising inflation and fear of a coming recession, people began to buy products with value.
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Since this shift was unexpected at the time orders were placed, it led to companies with the wrong inventory.
Some of the drivers behind these changes, particularly the consequences of the Covid-19 pandemic and the Russian invasion of Ukraine, could not have been predicted, and the scale and duration of the resulting disruptions were unprecedented.
However, some of the causes are well known and point to ways in which similar situations in the future could be mitigated.
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As the Journal reports, while the strategy may provide some short-term relief, it may exacerbate the overall supply chain situation, he said.
Mountains of inventories
Trailers loaded with goods cannot be used to transport products moving through supply chains, further hindering flows of items that are already hampered by other blockages.
Meanwhile, retailers are using age-old practices, such as deep discounting of in-store prices, to clear excess inventory from their books.
The impacts caused by the Covid-19 pandemic and other global disruptions are partly to blame for the mountain of inventory that companies are now struggling to contain.
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These systemic shocks triggered huge fluctuations in demand and supply and thus the re-emergence of the whiplash effect.
Forecasting demand has always been an inexact science, the expert commented.
«Accurately predicting the fickle buying habits of consumers is a monumental task. Adjusting supply, especially when it is done for highly complex global supply chains tailored to just-in-time and make-to-order strategies, is even more difficult,» he said.
What to do in the face of changing demand?
He added that companies have gotten much better at learning how to take advantage of demand variability and gave the example of deferral (delaying final assembly of a product as late as possible to make demand forecasts more accurate) as a technique that mitigates inaccuracies when analyzing the market.
However, all statistical forecasting models are based on the past.
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When outages are large enough to introduce a structural change in demand, no statistical model, whether based on ML or some other methodology, can provide a good forecast, he warned.
What does supply chain visibility provide?
He said the only defense against supply variability is supply chain visibility.
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