Addressing Inventory Challenges in Wholesale Business During Times of Crisis
During the COVID-19 crisis, companies have seen firsthand how economic uncertainty can disrupt normal supply and demand dynamics, intensifying some common challenges in wholesale business. Inventory is one of the most affected areas in these turbulent times. Getting it right can mean the difference between competing and falling by the wayside. The ability to pivot and reliably meet demand surges can put companies ahead of competitors in a tight-margin industry. On the other hand, having too much inventory may lead to risks that threaten the bottom line.
Uncertainty impacts inventory
Sometimes, having too much inventory is just a matter of lapsed controls or lack of clear strategy that goes beyond speculation on what customers might need. However, companies may try to manage excess inventory in response to a variety of business scenarios, such as:
- Supply chains becoming volatile
- Consumer demands shifting with preferences or changes in the economy
- Rising shipping costs
- Inflation—either a decrease or an increase—affecting prices of raw materials or finished goods
Companies often try to stay ahead of these concerns by keeping more inventory. Resilience strategies that involve more redundancy can provide a security blanket for a company, but they can create other issues, too.
Drawbacks of higher inventory
Having enough inventory can position your company to meet orders in a surge, helping keep customers happy and loyal. But knowing how much is enough is key—having too much inventory on hand can have serious drawbacks. Excess stockpiles may become dead weight and lead to cash bottlenecks. In addition, managing more inventory carries the risk of directing precious resources to products that may not turn over fast enough.
Amping up production or the purchase of raw materials, for example, can mean incurring more expenses for labor and procurement that may take a while to recoup, if ever. Costs for storage of the excess inventory can rise, too. There's also the increased potential for waste from theft, spoilage or obsolescence. All these risks can compress profit margins and threaten any competitive advantages that might have been gained by having more inventory on hand.
Considering best practices
How can a business maintain the precarious balance between having enough and too much inventory? Start with a commitment to creating a detailed inventory strategy that fits your business goals and the nature of your sector. Consider adopting a lean approach to inventory levels. Look for ways having less inventory could drive value and efficiency.
Strive to pull freight only as customers need the items rather than stocking items based solely on the speculation. Look for ways to trim back stock to lower your storage costs, make items easier to locate or avoid waste and obsolescence.
Technology and automation can help you achieve several goals that align with lean inventory control. A technology system suited to your industry and business needs can actively monitor inventory flow alongside customer preferences and market trends. Data can help you improve supply chain visibility and manage what you have in stock more effectively. You can further tweak your inventory approach to suit your customer base and avoid waste.
Also, think beyond the storeroom when addressing the challenges of wholesale business. Centralizing your sales channels can make reconciliation and inventory count simpler and more efficient. The right order processing software can allow you to better integrate critical operations with purchasing, accounting, payroll, sales and marketing. This scenario can reveal opportunities to improve your inventory and be more competitive in a changing market.
An adaptive, technology-driven approach to inventory management can help your company rise to meet challenges in wholesale business. Prioritize the outcomes you want to achieve. Discuss with your banker how investing in financial management systems or tools can help you achieve your goals.
Financial insights for your business
This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.