August 8, 2022 The Supply Chain Logjam is Changing Inventory Space

The ongoing crisis is forcing businesses to find new, technology-driven approaches to inventory management.

by Learie Hercules, CTO at warehousing and fulfillment company Smart Warehousing

Businesses everywhere have faced a variety of unprecedented inventory challenges and supply chain hurdles over the last few years, including the inability to replenish stock due to component shortages and delivery delays. Along with this shift, we’ve also seen record high shipping rates.

To overcome these challenges, many companies have begun outsourcing their inventory stocking and shipping to online retailer giants like Amazon. The problem with this approach is that outsourcing cuts into profit margins. In addition, branding consistency suffers as customers become more familiar with the name and logo of the retailer rather than those of the manufacturer or brand.

Fortunately, there may be alternatives available for companies of all sizes who are struggling to overcome their inventory challenges and customers’ delivery expectations. 

What’s behind the logjam?

Most of the issues that are still plaguing global supply chains can be traced back to the Covid-19 pandemic. During the early 2020 lockdowns, there was a sudden surge in demand in some sectors while demand dropped in others. For instance, Singapore ran out of eggs after consumers started hoarding them. Retailers ordered more eggs to meet the demand, but once that demand was satisfied they were left with an oversupply that led to more than 250,000 eggs being thrown away. This is known as the bullwhip effect: any sudden changes in customer demand can have far-reaching consequences across the entire supply chain.

Lockdowns and border closures also had a severe impact on shipping, resulting in some containers being left in the wrong location as trade routes shifted and vessels couldn’t dock where they intended to. Even now that most border closures have ended, we’re still feeling the effects of this shipping disruption: a typical container now has a transit period 20% longer than before the pandemic. This has in turn caused a massive spike in shipping costs, with major east-west trade routes in particular experiencing a price increase of 80% year over year.

But the pandemic is not the only cause of the logjam. Other issues include the increasing digitization of the supply chain: more and more warehouses, containers, cargo ships, and production centers are becoming interconnected through IoT, automation, blockchain, and other advances brought about by what’s being called the fourth industrial revolution.

Although this increased digitization is expected to improve logistical operations over time, for the moment it’s making things more complicated as some sectors and nations are embracing these changes faster than others. This shift towards increasing digitization had been happening for years, but the pandemic has sped up the transition as more companies look towards technology to improve their logistical operations.

Supply chain workarounds

Many businesses have decided not to wait around for supply chains to untangle themselves and are instead pursuing workarounds, some are more aggressive than others. Whatever choice companies make, they need to ensure the workaround aligns with long-term business goals.  

1. Increased automation and digitization

As more customers shift their buying habits from traditional brick and mortar retailers to online stores, there is a need for businesses to increase automation and digitization across their entire system to optimize the buying and delivery expectations of customers. Automation allows increases in efficiency as well as the ability to collect real-time insights for individual fulfillment activities. This increase in visibility of activities and the real-time nature of the data means real-time opportunities to improve service levels. Digitization means a refresh of the underlying architecture to ensure real-time data collection and real-time processing of that data. Real-time technology stacks that include machine learning recommendations are now becoming the norm.  That looks very different from legacy monolithic architectures that traditionally dominated the industry.

2. Machine Learning Inventory Optimization: A New Approach to Inventory

Inventory optimization algorithms are now becoming the de-facto standard. This originates from the search to find how to forecast demand by sales, geographic location, and product type such that a logistics provider can produce and share the insights with brands. Machine learning can guide fulfillment providers in helping brands position their product closer to customers for efficient last-mile delivery, particularly when brands don’t have the necessary skillsets in-house to create the machine learning insights. This also allows logistics providers to help brands with visibility across multiple warehouses or fulfillment centers and ensure integrity of their inventory.

3. Additional warehousing- Where? When?

With the widespread adoption of the JIC system and the need to meet the one- to two-day delivery expectation of customers, many businesses have begun looking into ways they can secure additional warehousing facilities. This has led to a massive surge in the demand for warehousing, which has pushed up the costs for real estate and building materials. One alternative to building your own facilities is the use of on-demand warehousing that allows businesses of all sizes to outsource their inventory and delivery to third-party vendors. This has the advantage of greater flexibility, reduced costs, and easy scalability, but with the right logistics partner that gives you the needed visibility. Does your fulfillment provider have the needed footprint to get you closer to your customer? Does they have the necessary last mile optimization technology to get you to your customer service levels?

Final Thoughts

Although more than two years have passed since Covid-19 first appeared, it’s clear that global supply chains are still experiencing regular hiccups. While this phase will eventually pass, it’s also clear that global supply chains will soon look very different from how they looked pre-Covid. We’re entering a new era in how logistics is handled, one that will be dominated by greater digitization and new methods for managing inventory driven by technology, data, and machine learning. It’s up to each brand to decide how to embrace this new landscape.

Learie has vast experience with next-gen technologies and automation. He has worked with multiple wireless technologies, IoT, and cloud platforms with a focus on Big Data, AI, and Machine Learning, for some of the largest wireless carriers and Smart Cities in the world.

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