Rising Inflation + Long Lead Times = Supply Chain’s Perfect Storm

Dollars surviving the storm: Inflation and long lead times

Rising inflation and a seemingly broken supply chain have created a perfect storm for wholesalers.  On one hand, the erratic demand and longer lead times require significantly more safety stock to ensure wholesalers can continue to meet the service levels their customers demand.  On the other hand, rising inflation has meant that inventory is much more expensive to hold onto.  The good news is there are a few things warehouses can do to deal with this double-edged sword.

Utilize Advanced Demand Forecasting Tools

Make sure you are utilizing all of the tools currently at your disposal.  If your demand forecasting software has tools to account for seasonality, now is the perfect time to ensure you are taking advantage of that feature.  Seasonal forecasting accomplishes two things.  First, it ensures that as you enter your peak season, your demand forecast will increase to bring in additional inventory to meet service levels.  In addition, as you exit the season, it will automatically REDUCE that forecast to decrease the amount of inventory in your warehouse.  All of this will happen while lowering the amount of safety stock required. 

In addition, make sure you keep up with the ongoing maintenance of your demand forecasting, when needed. Most software will have periodic “check-ups” that will alert you to products that did not perform as expected. Just like an oil change in your car, these “check-ups” are critical to the long-term health of your demand forecasts and ultimately, your inventory levels.

Review SKU Stratification

Now is a great time to review your SKU stratification strategy.  If you use ABC classification to determine safety stock for your inventory, this is a good time to review those classifications.  Are the items in the right category?  Should you introduce additional categories for the VERY slow-moving products (D,E, etc)?  Can these products be filled at an even lower service level requiring even less safety stock?  Perhaps during this review, you will identify products that can be eliminated altogether! If a product hasn’t sold in 6 months or more, it may well fall in the “Y” category…as in, “Why do we even have this product?”

Look For Alternate Suppliers

Look for alternate vendors that may be able to provide the same products as your normal suppliers at an even lower cost. For example, in the grocery industry, diverters will source products in large quantities and then resell them at a lower cost than is often available from suppliers.  This can be a fantastic way to reduce the cost of acquiring products. 

Unfortunately, there is no “silver bullet” that will fix the current situation.  While there is no way to know for sure how long we will be in this crazy environment, refocusing your attention on the things you can still control will put you and your business in the best possible position when this storm clears and the sun emerges again. 

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Dan Kiefer
Dan Kiefer
VP of Solutions

Author’s Note:

This blog post was provided by K3S, a leading provider of inventory replenishment solutions for wholesale distributors. You can visit our website or contact us today for more information about our services. Thanks for reading!

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