How to manage inventory during a shortage

How to manage inventory during a shortage

Unison has 3 recommendations about how to manage inventory to help you reduce the impact of the current inventory sourcing challenges in your business.

There was an article published in the La Presse of January 8, 2022, entitled “Supply challenges: Companies facing the flaws of the just-in-time method”

In this article, some companies explained how they have had to increase their inventory levels and in some cases increase their storage area due to the fact that delivery times are getting longer and stock shortages with certain suppliers are becoming more and more frequent.

Companies therefore are putting aside the principle of just-in-time, a system of receiving inventories as they need them, and increasing their inventories as well as their operational costs.

Companies must therefore review their supply strategy to take into consideration the different scenarios that could take place, such as the pandemic.

First, we must remember that just-in-time does not exist simply to reduce inventories. It exists to be more adaptable. If you quadruple your inventory and your product is no longer selling, you are stuck with useless material.

We do not seek to have the smallest inventory possible but seek to have only the inventory required for production when it is required. You must not abandon your system, but you must make it flexible and be able to recalculate your inventory levels according to the situations you are experiencing with your suppliers.

Here are some options that can reduce the impact when such situations arise:

Kanban system:

If you use a Kanban system (physical or computerized) make it more flexible so that you can regularly modify the quantities to be ordered or the delivery times. Your Kanban system should be constantly evolving depending on discussions with suppliers. In troubled times you can increase inventory min/max based on supply times, when things return to normal, then bring the min/max back to their original level. Constant communication with suppliers will be required in this situation.

Analyze your suppliers:

Do some of your raw materials come from one single supplier? Then, you should do some research and testing in order find other potential suppliers. If ever your main supplier becomes problematic, you can always turn to an alternate supplier. Do not wait to experience problems and production downtimes before going through this exercise. Always have a list of alternate suppliers on hand. Also remember that when looking for other providers, price shouldn’t be your only criteria. A supplier with a lower price but too long a delivery time or poor product quality will not improve your situation.

Modify your procurement cycle:

Check your procurement process. What is your trigger for placing an order? Instead of placing larger orders due to the excessive lead time, is it possible to place only one single large order to catchup a bit and then increase the ordering rate according to the flow of stocks expected by production. For example, instead of ordering once a month, place smaller orders once a week. Discuss with your suppliers the different options available. Also check if it’s possible to place larger orders but to stagger deliveries according to your needs. This situation can potentially be beneficial for both parties. A larger order with the supplier with distributed deliveries can allow him to better plan his production and satisfy several customers and from your end, you are not bombarded with a surplus of inventory.

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