With the advent of COVID-19 many businesses suddenly find themselves with a massive amount of excess. Demand has collapsed in many segments.
A business that has had three months of stock all of a sudden has six. So one of the first reactions has to be to stop any more arriving, and that means stopping purchasing to avoid the problem becoming any worse.
However perversely the excess does have one advantage – it gives you time to develop much smarter responses to this crisis. In many cases you will not need to purchase again now for six to nine months. Use this time to your advantage.
Buy Time and Understanding
One of the most important issues to get on top of is what is driving demand. How much will it drop? When will it bottom? What are the leading indicators for when it will recover?
Importantly forecasts based on historical sales and parts usage are only of limited usage now. In many cases you could fire a gun down many streets and not hit any vehicles. With people locking down and not travelling obviously wear and tear has been reduced. You will not need to change the oil and air filters as often. Lower densities of cars could be reducing accidents even more. However logistics businesses may be far less affected. We still need to eat and buy basic essentials.
Finessing the demand signal is important to understand when and how recovery might happen but a smarter level of analysis can also help you respond to the initial downturn.
Firstly it is important to differentiate retail and wholesale demand signals. Retail demand will be more sensitive to underlying changes and will be seen more quickly. On the other hand stock orders for dealerships and franchises will all too easily reflect changes in inventory management policies, practices and the like. It is extremely important to dig underneath the numbers to understand what is really happening and what might happen in the future.
It is also important to look below the monthly totals and look at individual orders. An order for 2 or 4 units is more than likely for a retail usage. But an order for 20 is more than likely for a distributors stock levels. The retail usage will normally have to be provided very quickly and usually will need to be available for the local branch. But an order for 20 could well be sourced from a regional DC. Parts for preventive maintenance are by definition not needed immediately and can be held higher up in the supply chain. These sorts of strategies can help you lower your working capital and cashflow needs, which for many will be critically important to making sure you can recover.
Stretch further
With irrigation, the objective is to get the right amount of water to the plant roots with as much efficiency and as little wastage as possible. Smart sensors and automatic controls make this much easier.
Inventory can be similar. Just some of the capabilities that can help include:
- Using our software's fair share algorithms to put scarce stock in the best possible location to be sold / used. So you can run your inventory down even further knowing that you have a tried and tested way of putting stock in the right place at the right time.
- Automatically moving any excess that may be present to better locations to be used / sold. Tune the business case rules so that the system is more ready to move stock. You probably need to err more on the side of moving stock than to stubbornly keeping it in the wrong places. And if you have branches with managers who hang on to their own personal stash of stock, move the stock and maybe the managers too. Systems can do so much. Cultural change and effective management may be needed too.
- You don't have to put stock in every branch. Make smarter decisions and also deploy some backup stock in support warehouses around your network. What, how much and where? It can be so easy to tune your system to do this if you have the right tools.
- Use Expedite / Defer to defer what you can and accelerate what you must. Take the high ground for service. An opportunity to talk with suppliers too.
- Auto release the easy ones so you have time for the big decisions.
And just maybe now is the time to look at your systems, culture and processes. Is it time for a new 'normal'? Don't waste this crisis. You can emerge smarter, trimmer and more profitable.
… AND MAKE Every DROP CounT