Wondering how to adapt wholesale inventory management strategies in the face of supply chain challenges? Here, we consider some valuable insights on navigating these evolving dynamics, focusing on resiliency in uncertain times.
The supply chain has been a rollercoaster ride these past few years. Between the pandemic, global geopolitical unrest, and rising energy costs, wholesale firms and logistics professionals have had several new challenges to tackle. At a time when extended delays can make or break a quarter, robust inventory management practices are top of mind for many.
Will these challenges persist into the future? Should sellers anticipate delays and frame their business strategies accordingly? Let’s unpack the current state of the US supply chain, while considering some high-impact inventory management strategies that can put resiliency front and center.
The State of the US Supply Chain: Challenges and Opportunities
The Covid-19 pandemic was the first domino to fall in a string of supply chain concerns. To contain the pandemic in 2020, China walled itself off from the world—which revealed how heavily the American economy relied on low-cost overseas manufacturing.
It’s all to do with just-in-time manufacturing, or the idea that firms should only produce what they need to sell when they need to sell it. They anticipate demand and ensure there’s just enough supply. But when demand skyrockets—as it did during the pandemic, with an abrupt pivot to “goods” and away from “services”—there isn’t enough extra. Furthermore, production slowdowns or complete stoppages mean items in high demand, like laptops and toilet paper, aren’t available.
While the shocks most directly related to the pandemic have eased, others have cropped up in their wake. A pivot to nearshoring or reshoring to shrink the length of supply chains post-pandemic started out nobly—but new geopolitical tensions create uncertainty there once more.
Meanwhile, on the domestic front, we’re seeing costs rise due to a tight labor market. At the same time, critical materials like cement and machine parts are becoming more difficult to source as automakers attempt to catch up on demand.
Inventory Management Strategies for Wholesale Businesses
Wholesale businesses play a critical role in the global supply chain. They’re often the middleman between manufacturers and small-scale retailers and they can also sell directly to end-users.
As such, wholesalers are usually expected to have plenty of supply in stock. When they don’t, it can create a ripple effect up and down the supply chain. Let’s consider several inventory management strategies that might improve efficiency within a wholesale organization—with an eye on long-term resiliency.
Increasing Accuracy When Forecasting Demand and Supply
Wholesalers often rely on demand forecasting to garner accurate predictions regarding what customers will order. However, needless to say, customers don’t all share the same needs. They may be in the same industry—but a mom-and-pop grocery chain will have different ordering habits than a Walmart Supercenter.
Many wholesalers create general forecasts encompassing a wide range of buyers; however, this can quickly skew supply and demand and may lead to profit erosion during already-trying economic times.
Instead, tighter control of the purse strings might entail getting more granular with sales forecasts. Businesses can do this by leveraging channel-specific forecasts to consider each customer’s unique ordering habits; doing so provides segmentation and accuracy beyond what general forecasts can match.
Each channel contains customers who share similar qualities or behaviors that prompt them to order alike. Instead of grouping mom-and-pops with supercenters, this breaks them into separate ordering entities with unique needs.
From there, one can tailor inventory management strategies depending on the specific needs of each channel. A few examples of different ordering channels include:
- One dedicated to a single high-volume customer
- Buyers with similar behaviors, like C-stores and mom-and-pops
- Customers with unique delivery stipulations
- Retailers grouped by geographical location
- Buyers who lean on specific sales channels, like eCommerce
Balancing Safety Stock and Service Levels
Throughout the pandemic and subsequent supply chain woes, we learned a lesson regarding the value of safety stocks. Safety stocks help with inventory management because they help fill gaps when cycle stock is insufficient. That said, there’s a fine line between having enough safety stock to satisfy demand and losing money.
Many inventory managers rely on tried-and-true practices such as keeping safety stock levels equal to 10–20% of cycle stock. Think of it as a two-week safety net to prevent stock-outs in the event of a disruption.
But in these times, safety stock calculations could benefit from more nuance. Demand is constantly fluctuating; anything can happen at any time. Accordingly, ensuring safety stocks meet evolving inventory management needs might require a little extra math—such as lead time calculations.
Safety stock lead time refers to the time it takes to order and restock inventory. Several factors can influence lead time, so don’t leave anything to chance. It’s also why lead time variables are critical to making accurate projections. When performing these calculations, keep the following variables in mind:
- The estimated time to complete an order
- How long it actually took
- The difference between actual and expected time (calculated as actual time minus expected time)
Create datasets from sales quarters to account for variances in each cycle. Positive numbers indicate late deliveries, while negative numbers indicate early deliveries. Think of it like golf—the lower, the better.
Working Capital Optimization: How to Improve Cash Flow and Profitability
For wholesalers, improved cash flow and profitability can prove two key components of proper inventory management. In the face of continued supply chain woes, how might one effectively disperse working capital to secure profitability quarter after quarter?
Reducing Inventory Costs and Risks
Housing inventory is expensive—in fact, inventory costs often account for as much as $1.37 in inventory for every $1 sold. To put that in perspective, for every $1 million in products stored, you’re paying as much as $370,000 to keep them in a warehouse.
Reducing inventory has frequently proven to be an effective method of improving cash flow while avoiding much risk. Finding the middle ground between keeping enough on hand and overstocking is key. Here are a few strategies worth consideration:
Purge Obsolete Inventory
Inventory managers hate removing stuff, but sometimes it’s a necessary evil. Obsolete items don’t sell, and often cost more to store than simply discard. Knowing when to cut losses can be critical—that space might be better served housing new, hot-selling items.
Lean on Automation
Consider setting up auto-reorders when inventory gets too low. Auto-reorders ensure that popular items never run out, and help curtail the risk of human error.
This strategy usually works best in tandem with cutting-edge inventory management software, so keep up to date with the latest systems.
Improve Lead Times
It may be time to sever relationships with suppliers who take too long to deliver products. The faster suppliers can deliver, the less you’ll need to spend on warehousing safety stock—so shopping around for better suppliers is always an option.
Negotiating Better Terms with Suppliers and Customers
On the subject of suppliers, it never hurts to try renegotiating more favorable terms. Markets and prices fluctuate. As such, no one wants to pay more than current demand dictates. It may seem daunting—but negotiating with suppliers can help one obtain the best possible terms.
Remember, negotiation is about reaching mutually beneficial terms between two parties. You can’t make out like a bandit while the supplier loses money. So, when preparing to negotiate, consider the following strategies to achieve desirable results.
Determine Your Needs
Center any ask around what you need from this specific supplier. This will help keep focus on the most critical aspects of this business relationship. Ideally, both parties might be willing to accept mutually beneficial compromises.
Understand Their Needs
We’re all in the business of making money. Entering negotiations with your suppliers' needs in mind is a great way to build trust and credibility. When suppliers trust you, it can increase your chances of reaching a more favorable deal.
Be Realistic
Avoid unrealistic goals or expectations that could hurt negotiations. There’s nothing wrong with making a low-ball offer—but don’t low-ball so much that it’s disrespectful.
Leveraging Technology and Automation for Inventory Management
We’ve touched on tech, automation, and inventory management software—but how might wholesale firms also leverage the latest technological trends to improve cash flow and profitability during periods of economic uncertainty?
Lean on AI
Artificial Intelligence (AI) has plenty of use cases in the wholesale industry. Among the best ways business leaders can leverage AI is by using it to gain actionable insights into customer behavior.
Before, we touched on how more granular forecasts might bolster inventory management based on the unique needs of different sales channels. AI-driven tools can help gather and organize that data to generate comprehensive customer profiles.
AI can also make a business more agile, allowing for flexible reactions in the face of fluctuation. Leveraging AI in distribution analytics can power more accurate forecasts based on current, predictive, and historical data. From there, one might make quicker, more informed decisions based on operational data.
Invest in Inventory Management Software
This software can significantly streamline inventory management when employed effectively, removing the need for manual systems more prone to errors. Software can help automate cash flow, giving one the power to create and send invoices instantly via email. You might even automate recurring invoices to boost efficiency further.
Inventory management software simplifies payment systems as well. Buyers can quickly pay their invoices online; quick payments can lead to real-time cash flow insights—thus potentially improving short-term projections.
Centralized Data
AI and inventory management can combine to provide robust data sets to expedite business success. Furthermore, a centralized system consolidates data in one place, enabling more accurate forecasts based on unique customer needs and current cash flow.
Set Your Business up for Success, No Matter What the Future Holds
Wholesalers play a significant role in the global supply chain—and so do their inventory management practices.
If you’re a wholesaler planning for the uncertainties of the future, reach out to start a conversation with First Bank & Trust, a division of HTLF Bank today. Together, you can optimize your inventory management strategies to ensure you’re never wasting a dime on unnecessary warehousing expenses.
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