How to Avoid Getting Stuck With Excess or Obsolete Inventory
High-tech products evolve at breakneck speed, which can be a good thing for consumers who want the latest-and-greatest. But it also means products can quickly become marginalized (requiring sellers to discount them) or even obsolete. That’s why tech companies need to keep pace with their supply chains—or suffer costly mistakes.
Consider the case of a major manufacturer of desktop printers who found that retailers were including safety stock (buffer stock stored to mitigate risk of stockouts) in their sales projections. Distributors then inflated their forecasts, which distorted the projections further. The results: The manufacturer and its suppliers responded by upping their production, which rippled down the supply chain.
The use of any company’s capital to manufacture, store, and insure more inventory than is needed is inefficient, and a drain on the bottom line. In addition, needlessly tied-up capital can present not only a potential opportunity cost, but also a future loss if a bloated inventory loses value in the marketplace or, even worse, becomes obsolete.
With greater visibility into the supply chain, companies can improve demand planning and inventory optimization. As these processes become more efficient, the risk of inventory write-downs and write-offs diminishes. This delivers a more cost-effective supply chain overall.
Offering capabilities manufacturers may lack, a third-party logistics provider can be a useful partner in improving demand forecasting. "Inventory is your biggest cost in an operation," says Mark Modesti of UPS Customer Solutions. "The goal is to be as efficient as possible on the forecasting side, balancing the amount of the investment with the risk involved. And midsize companies, in particular, often need that expert logistics support to bring their products to market cost-effectively."
When a logistics provider can help deliver an end-to-end view of your supply chain, you’ll know what’s coming in, what’s selling, and what’s being returned. That’s transparency. Here are four action tactics you can implement, to help you from getting stuck with extra or out-of-date inventory:
1. Get better data from suppliers
Cloud-based vendor management systems can help make it easy to manage your supply chain front end, without having to invest in your own expensive technology or resources. By understanding where inventory is in the pipeline, and more accurately gauging demand, you can improve inventory management and planning. That means you can sell goods you’ve yet to take physical control of from vendors or suppliers, and staff up, based on when shipments are arriving. As real-time information exchange with vendors and sales improves, you can better pace one with the other.
2. Empower marketing and sales
Demand management in the omnichannel environment can be challenging, so deploying cross-channel inventory management software to integrate and centralize sales and marketing channels—internet, telemarketing, direct response, catalogs, mobile, and retail—can be a smart move. With an improved view of the supply chain, sales and marketing teams can help better manage inventory levels by ramping marketing and pricing up or down appropriately.
3. Lower distribution costs
Supply chain transparency means the warehouse can more accurately staff in advance of, and in the wake of, product launches—and better anticipate return volume. Logistics providers can help you retain visibility into inventory, allowing you to focus more instead on product development or scaling quickly.
For instance, eSecuritel, which insures and replaces mobile phones and electronic devices, outsourced its entire warehouse-to-consumer operation to the UPS logistics and distribution campus, close to its worldwide hub near Louisville, Ky. Ultimately, transit times were reduced, and UPS coordinated warehouse staffing and processing, in order to maintain the quality controls that eSecuritel was known for, while eSecuritel focused on growing its business.
4. Create more return customers
Better insight into inventory levels and movement also allows sales and marketing to communicate with your customers. For example, your website could let customers know that the item they are viewing is low in stock, so they’ll know to order promptly. Or sales reps could inform vendors precisely when back-ordered items will be available, or give them advance notice on highly anticipated product launch dates. Increased visibility improves inventory management, which lowers the risk that customers will be disappointed. All this means more return customers.
For midsize companies, in particular, it can be difficult to move outside of your core competency and handle the logistics of getting products to market and managing inventory. Finding a logistics provider like UPS provides access to an established warehouse and distribution network that can help stage your inventory efficiently, and possibly reduce time-in-transit and overall transportation costs. That means better visibility, and happier customers who keep coming back—and all without the capital costs and risks of investing in your own facilities and systems.
