The Inventory Question: Too much or not risk not enough?

Definitely a defining question for all-year-round scenarios. Companies gamble with stocking too little or too much but looking for the right answer for each market is an imminent task for some. Let’s dive into the pros and cons of each approach to help you decide on the sourcing of your supply chain for the growth and development of your sector. 

The first step is defining your big risk to address the big inventory question. Identify which is the most significant risk for your company:

1. Spending more capital than projected immediately
2. Potential losses of sales due to stockouts further down the line

Let’s analyze the reasoning for weighing this decision for what’s most suitable for your operations. 

Increased Safety Stock

Some operations move around revenue and spend more on immediate increases in safety stock so it’s important to recognize if volatility has hurt your business. Increasing your safety stock can be a great response to this scenario although the current 2021 holiday season is really uncertain. Spending now gives you more time to have that inbound freight arrive. Even if you have long delays during different legs of the journey, you’ll avoid stockouts and lost sales. If your goods are going through high sales and you expect that to continue or even grow, you might be able to pull in significantly more revenue with extra stock compared to the risk of stockouts and backorders.

Pros

• Reduces risks around inbound freight delays
• Minimizes the chance of stockouts during your high season 
• More flexibility to meet customer demands and concerns.

Cons

• Increased costs related to acquisition, inbound shipping, receiving, and storage
• Increased physical space requirements that may be limited by your own warehouse
• In need of higher sales to recoup your costs

A 3PL partnership should be supportive and provide the right leverage. In G-Global we offer the orientation and capacity to face a growing demand with real-time data. Count on our affordable fulfillment warehouses and your own tailored team for seamless logistics operation. 

Some businesses have looked into the costs involved in ramping up their stock but have not found true safety when margins are thin or facing COVID’s massive market shifts in such a short period of time. This approach reduces the worries that your doors will close before you can sell enough to make up the gap that overstocking adds.

At G-Global we suggest maintaining current stock levels as a helpful tactic for a long sales cycle. If you identify long sales cycles in your supply chain, this provides more time to plan and predict purchase orders, creating flexibility to increase a resupply in the future. Working with a local supplier manufacturer, you’re in a solid position to avoid COVID- and other disaster-related shortages. A result-oriented transition many leading companies have made and we highly recommend is sending fabricating operations to Mexico and receiving a constant supply of goods through G-3PL. We guarantee daily deliveries to feed your production and order fulfillment. You can read more on our blog https://efulfillment.G-Global.com/.

With control over your sales cycle and the processes involved, you can benefit from creating significant savings by starting to change how restocking is made. If your supply is managed with a minimal amount of stock, such as subscription box services or specific sales threshold, knowing that customers will wait for a period of time for their next order means having enough lead time to properly stock ahead and order processing and necessary fulfillment steps. 

Companies with a lot of control over their sales cycle and process may also safely benefit from the savings of ordering a minimal amount of stock. This typically covers companies that manage when they fill and deliver orders, like subscription-box services or those that only sell a product when they reach a specific sales threshold. Customers are aware that they may need to wait, and you get enough lead time to properly stock ahead of order processing and fulfillment steps.

Data Accuracy

If your business safely runs in Q4 2021 with current stock levels or mirrors last year’s inventory count, we recommend analyzing the effectiveness of your current database. Initially, revising frequent customers and regular sales can reveal useful information but a deeper and constant review of 2021 to date, month-by-month in 2020, and a baseline from 2019 at least is the best way to make informed decisions.

Accurate information on order volume and value is essential to answer the inventory question. Collecting information on this year’s performance eliminates the uncertainty of accurate and on-time accomplishments and customer complaints aligned with probable issues. If carrier timing impacted inbound or outbound shipments, these will be reflected in your statistics analysis. If you don’t have this available information, it’s a great opportunity to start implementing indicators to measure your operations with software and automated responses. 

Once reviewing your performance for the fulfillment, it is ideal to also assess manufacturing lead times throughout the past couple of years too. Seeing the big picture of influential factors and other events happening around your operations such as the port congestion or the Suez Canal blockage gives insight on how to prepare for future obstacles. With further control of orders implementing minimum order quantity to avoid overstocking in times of trouble becomes a cautious move for you and facing fewer risks to whatever else 2021 throws at us.

Pros

• No surprise investment or expenditures
• Allows you to use existing forecasts for inventory, labor, and more
• Reduces the risk of having too much stock that becomes a long-term loss enabler

Cons

• Less time to respond to changing behaviors or shutdowns
• Fewer protections in the event of a significant market disruption
• Potential for longer lead times and backorders if sales surge

Your business has a safer bet than experimenting with a higher revenue floor even when it lowers the ceiling of profitability. As 2021 continues to advance, it’s easy to understand why it’s the best move for long-term viability. If your priority is consistency, let your 3PL know and ask for suggestions on inventory planning. 

Let us know what your 2022 growth looks like! G-Global is passionate about finding the best inventory method for your company’s needs. Our experts are available 24/7 for constant orientation and our digital platform is tailored to each operation of your supply chain. Innovate today with logistic inspiration!