De-risking inventory in an uncertain market
Jul 21, 2023
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Jul 21, 2023
Scroll to find out more
After the consumption boom of the pandemic era, retailers have had to deal with a radically changed commercial market in 2023. Inflation, economic uncertainty and rising prices have put more pressure on households, leading to 63% of consumers spending less on non-essentials in response to the increased cost of living, according to a June survey.
For retailers who began the year overloaded with excess seasonal stock, the tighter demand environment has forced a change in the way planners predict, meet and manage inventory levels. With margins tight and the future uncertain, supply chain managers are having to rethink their ordering, manufacturing and warehousing to reduce costs and waste, raising the bar for precision, efficiency and data across the supply chain.
To dig into the on-the-ground conditions driving inventory strategies, we sat down with Sigrún Gunnhildardóttir, Chief Product Officer at AGR and Okyay Oztugran, VP of Supply Chain Europe at Spreetial at Navigate, our online event, and shared on our podcast Freight to the Point.
Inventory has always been a balancing act – ordering the right amount of stock to meet demand without tying up working capital in unsold goods. In an environment where demand fluctuates, supply chain planners are moving from a lean supply chain model to one where they track and adapt to the market in real time.
“Rather than aiming for cost discounts, retailers are now ordering more frequently to adjust the fluctuating demand and mitigate risks associated with excess inventory.” explains Sigrún. This means a tighter focus on holding costs, stock cycles and regular ordering.
The test for businesses in this cycle is how much they have learned, if anything from the pandemic consumption boom. Particularly for e-commerce businesses serving consumers looking for something to spend on when services were unavailable, the rise of online retail forced retailers to rethink how they served their customers.
“In our company we have seen more than between 20 to 30% of increase in the demands, and it evolved in a sudden period, in six to eight months, 30% up.” says Okyay
“Then once everybody caught up with enormous inventory at hand, demand dropped and money started to go elsewhere, and we ended up with 8 to 10 months of cleanup period for overstocked inventory.”
While demand remains low, every order matters – this means that retailers still have to ensure they can meet every order across their customer base while keeping levels manageable.
This requires making careful decisions – where in the past, e-commerce platforms might have tried to offer a bit of everything they’re now shifting towards more curated and strategic selections. The strategy is not about having everything; it’s about having the right thing at the right time. For example, in summer, meeting the surge of demand in outdoor lifestyle products and pools – by bringing in inventory two months in advance, listing it on marketplaces, and implementing promotions to sell and deplete this inventory within 180 days, if not sooner.
Some of these changes require modifying supply chain infrastructure itself, as Okyay explains.
“We’re nearshoring some production like Eastern Europe, Turkey, where prices are favourable now, and even working with domestic producers, manufacturers so that we can bring products in the same day with the trucks.”
By shortening lead times, retailers can react more agilely to demand changes, reducing the reliance on long term demand forecasts, limiting the chance of ending up overloaded on, say, swimwear in November.
“Before, the minimum order quantities were five to 10 containers in the US, but now we are literally ordering single containers repeatedly every month because there are a lot of spaces in the ships now.” explains Okyay.
As the metrics for supply chain success change, so do the demands on freight partners who serve the needs of retailers.
“We’re focusing on dynamic planning, cash management of working capital and diversified supply chains.” says Okyay. “That’s why we have a preference for digital forwarders who can provide streamlined processes like the order management and documentation with everything online.”
Working with a digital freight forwarder enables retailers to manage their supply chain with real time visibility, tracking container locations, order updates and milestones based on reliable data. For firms maintaining light inventory models, this is a crucial advantage:
With shared data and visibility, retailers and freight forwarders can actively collaborate on ensuring the business holds the right inventory at the right time, both externally and internally .” By continuously monitoring ongoing demand trends, teams can adjust their replenishment strategies based on actual demand, dynamically adapting order quantities, reorder points, or lead times.” says Sigrun. “But furthermore, realtime demand data fosters better collaboration across different departments within an organisation and also at the supply chain.”
With the future of demand still up in the air, retailers are increasingly competing on efficiency and service at the same time. Shippers need to deliver the choice, speed and convenience that consumers expect while effectively managing inventory, margin and working capital.
Zencargo’s digital freight forwarding service is built for the needs of modern retail to enable businesses to respond to and capitalise on demand in real time while controlling costs and service, including:
To find out more about how Zencargo can help you build a more efficient, effective inventory management system, get in touch with our team.
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