Over the past year, inventory-based businesses have faced a tsunami of supply chain frictions, forcing virtually every company to scramble, strategize, and worry. Back-of-mind topics like repatriation, supply chain diversity, and supply chain autarky suddenly became pressing, topics. And the entire world faced a convergence of shipping woes — fueled by globalized connections, unparalleled levels of shutdowns, and immense economic pressures.
In turn, these shipping constraints are creating higher lead times, which impacts your productivity, risk level, and profitability. While the unique circumstances surrounding COVID-19 won’t last forever (expect years for certain materials to return to a pre-COVID baseline), shipping constraints happen in any environment. Given the scale of current constraints, inventory-based businesses recognize the need for more intense and purpose-driven strategies to mitigate shipping woes.
According to the latest data, lead time input from manufacturers has increased by over 200 percent across China, the United States, and Europe. Shipping constraints, supply chain frictions, and local disruptions have all contributed to the current state of lead time woes. And, despite a relative downturn in pandemic-impacted shipping, the issue of increased lead time continues to threaten 3PLs and distributors — and the problem isn’t “going away” anytime soon. To put it simply, short lead times result in higher revenue, better vendor relationships, lowered storage costs, and increased customer satisfaction. High lead times shrink revenue, negatively impact relationships, skyrocket storage and insurance costs, and frustrate customers.
At the end of the day, customers want their products on the shelf or in the mail. And if they aren’t, those customers will turn elsewhere. In the food industry alone, stockouts cost retailers $20 billion in annual revenue. When we include overstocks and include all retailers, that number jumps to $1.1 trillion. Failing to have the current inventory on the shelves presents a tangible threat to your bottom line. Unfortunately, keeping inventory replenished is increasingly difficult. SKU lines are increasing rapidly, promos are running more regularly, and digital channels are now converging with physical locations to create an omnichannel threat to your inventory levels.
In other words, inventory-based businesses are in between a rock and a hard place. Customer expectations are growing because of more competition, same-day shipping, and digital channels. At the same time, replenishment is more challenging than ever, so when we add a dash of shipping constraints to the mix, chaos is quick to follow.
According to McKinsey, winning the war against lead times often boils down to the accuracy of your stocking algorithms and the flexibility of your planning process. In fact, companies that embrace high-value stocking algorithms, forecasting, and supply chain flexibility see 15 percent improvements in on-time delivery and 35 percent less inventory in their warehouses. Unfortunately, many companies utilize subpar forecasting algorithms or rely on out-of-the-box ERP capabilities — both of which are often inadequate for solving the unique challenges of 3PL and distributor-based inventory replenishment.
The good news? Leveraging the right forecasting solution can reduce error rates by 50 percent. The bad news? You still need the proper supply chain planning and flexibility strategies to offset shipping constraints. So, you can’t simply purchase your way out of this issue. 3PLs and distributors need to rely on both world-class technology and savvy strategies and planning to navigate today’s turbulent supply chain — especially in our COVID environment and beyond.
We’ve identified three core competencies 3PLs and distributors need to master to decrease lead times in the midst of shipping constraints.
While the savings on bulk orders are tempting, they can land you in some serious hot water. In traditional settings (i.e., in pitch-perfect supply chain environments), ordering in bulk is the go-to for many inventory-based businesses. You leverage historical ordering data to predict how much inventory you need for a set period of time, leverage bulk discounts, and order many items that will hold you until the next ordering period. This process is becoming increasingly obsolete. Not only does this put tremendous pressure on your business if shipping gets delayed (since the bulk order represents a significant portion of your future inventory), but low ordering frequencies make it difficult to react and respond to on-the-fly promos and surges/drops in demand.
Increasing your ordering frequency often brings its own challenges. You need more accurate, fine-grained forecasting, and that forecasting needs to happen around the clock. For example, StockIQ not only uses specialized demand forecasting intelligence with hyper-accurate smoothing algorithms for promos, but we generate orders at the item level every single day, giving you the freedom to quickly order products in smaller, more purpose-driven batches to alleviate any potential shipping frictions.
In today’s hyper-connected, Globalized supply chain, many 3PLs and distributors deal with a wide range of suppliers. In fact, many aren’t even fully aware of their entire supplier ecosystem. We recommend mapping out your supply chain to look for any weak spots, trouble areas, or inconsistencies. At the same time, having a mapped supply chain can help you discover opportunities. For example, if you find you rely solely on an overseas vendor for a specific product, having a backup domestic supplier gives you a failsafe.
Again, StockIQ has a few capabilities to help in this particular area. Our S&OP capabilities make it easy to understand your inventory at every level, giving you the flexibility to discover supplier gaps. We also provide supplier performance tracking (both before and after adjustments) to help you find cracks in your supply chain. And our robust engine tracks all POs and sends you alerts when items are late (or about to be late) so you can quickly shift an order to a different supplier.
You can’t always control shipping conditions. But you can clean your own house. Replacing archaic, error-prone spreadsheets with best-in-class automated ordering engines and using built-for-you forecasting with best-in-class forecasting helps you eliminate time drains and improve accuracy on your end. In other words, what can you do to improve speed, accuracy, and throughput? While this will not immediately solve shipping-related lead time frictions, it will shrink time sinks that contribute to overall lead time issues — minimizing shipping constraints when they do (inevitably) happen.
Dealing with supply chain issues is a fundamental part of running an inventory-based business. But given the increasing scale and complexity of these issues, it can be difficult to find your footing. You don’t have to face the chaos alone. StockIQ provides an industry-leading supply chain management platform that’s custom-built for 3PLs and distributors. From world-class forecasting to S&OP planning, automated order generation, and rich replenishment features, StockIQ helps supply chain managers ride the waves of disruption. Contact us to learn more.