Do we need to rethink our inventory management strategy for both profitability and survival?
Summary:
- Traditional distributions systems are rapidly getting obsolete in today’s environment: Despite discussions on supply chain efficiency post-pandemic, global corporations still have 40% higher inventories, indicating a significant tie-up of capital in working capital and inventories.
- Necessity for Breakout Strategies: Legacy companies face significant survival risks if they don’t adopt disruptive concepts like on-demand distributed manufacturing and micro-warehousing. Embracing these changes requires shedding traditional mindsets and leveraging technology for better orchestration and synchronization across stakeholders.
- Many large corporations struggle to embrace change due to their market dominance, often settling for marginal efficiency improvements rather than significant transformation.
To compete efficiently in today’s dynamic and somewhat uncertain business landscape, leadership in companies must stay abreast and adopt modern approaches like distributed and on-demand procurement, production, and distribution.
Most large corporations find it hard, given their dominant market positions to get over their inertia for change. As a consequence of which, they end up merely tweaking their existing supply chains trying to make them marginally efficient. However, that alone will not be sufficient to sustain them in the future, in the light of geo political volatility, growing uncertainty and the constant threat of agile, asset light and technologically contemporary, emerging competitive forces.
Image Courtesy — https://bit.ly/3UuLXoF
A recent article in The Economist highlights that despite all the talk of post-pandemic supply chain efficiencies, corporations across the world have 40% higher inventories than before the pandemic. That is a whopping USD 600 billion in inventories!
The article rightly points out: “Each dollar tied up this way (in working capital and inventories) is a dollar not invested in pursuit of future profits.”
It is abundantly clear that the world will continue to have increasingly more situations (wars, pirates, weather, etc.) that disrupt supply chains . There will always be somethings that are unexpected with little or no precedence, rendering it impossible for companies to forecast, predict or plan for them.
In response to this new reality there is no shying away from ‘future proofing “ businesses.
So what are legacy cmpanies doing? Apart from tweaking existing processes to extract further operational efficiencies, their response has been to build up higher inventories as a buffer or just ramping up production capacity , to compensate, for supply shortages from a particular source(s). These measure can take a heavy toll on cost of doing business. They have a cascading effect on higher working capital, increased warehousing capacity, increased manpower to handle additional complexities, etc. Increased warehousing demand also pushes up warehousing rates.
It is imperative that Leadership, Management and Company Boards are left with no choice but to rethink their legacy strategies in order to be one more flexible and nimble driving a bolder approach to building supply chain resilience. They need to be more proactive rather than just react.
“It is possible for companies to transform. And the time is now.”
Most companies of all sizes were able to transform their operations to the changed market environment during the pandemic. Adversity of that proportion brought in some ‘out of the box’ thinking. The fact is that habit has to be institutional.
Corporations must encourage their leadership teams to transition to two disruptive concepts that can ensure supply chain resilience with lower inventory levels and without locking capital in spare capacity:
- On-demand distributed manufacturing
- Distributed micro-warehousing for near-market quicker response
In our view, not adopting these breakout strategies puts legacy companies at significant risk of survival in the face of new-age entrants who intrinsically have the on-demand and distributed model in their DNA.
Both these concepts require companies to shed their mindset of ‘buffer stock’, reliability (e.g. consolidating procurement, manufacturing, etc. with a limited set of partners) and predictability (e.g. mid and long term contracts for procurement of raw materials, logistics services, warehousing, etc.) to distributed and on-demand operations.
And the only way companies can be in control of distributed and on-demand procurement, production and distribution, is by leveraging technologies that enable them to predict better and respond better. This means they need technologies that will have far better orchestration and synchronisation between a far larger number of partners and stakeholders.
“While various ready-to-use services have reduced go-live time for online/omni retailing drastically, there is one challenge which continues, that is of sewing the data generated by different service providers together & making it actionable in the form of alerts, insights & actionable reports. An Omni-channel Control Tower helps create the single view to gauge the post order supply chain health at management level & at the same time creating actionable alerts and insights to take action for operations teams at the warehouses & shipping partners level” — Supertails
Legacy companies need to experiment with disruptive tech solutions.
A major option is to dip into the startup eco-system where some path breaking innovative initiatives are being undertaken beyond what the R&D setups can possibly throw up from within the companies.
Most enterprise-facing solutions by startups are created by individuals who have experienced the problem statements in their corporate lives and felt the need for solutions that they then feel deeply inspired to create.
Here are some examples of startups that are enabling large corporations to transition to distributed and on-demand procurement, production and distribution:
Omnivio: Helping companies synchronise and orchestrate operation between their significantly expanded partner base of retail outlets & channels, warehouses and logistics players. It helps enterprise clients get a consolidated view of their activities across different constituents of their omni-channel supply chain. Click here to read more.
A smarter control tower simplifies data collection for multiple brands & from tech touch-points; enables collaboration across teams and stakeholders, improves and accelerates decision-making and outcomes. It’s a predictive & proactive way to run Supply Chains — Mensa Brands
Stylumia: Ai-based demand forecasting, product design selection, inventory planning, and pricing optimization tool for consumer goods. Click here to read more.
SuperProcure: SuperProcure provides enterprises with instant digitisation of their current manual transport management process. (Even if the enterprises have ERPs and TMS, the interactions with over 22 stakeholders involved in the logistics processes are outside the enterprise tech. In such a scenario, SuperProcure’s product provides comprehensive modules for every process, workflow & decision point involved in the transport management activity.” Click here to read more.
Zetwerk: Helping companies transition to on-demand, distributed manufacturing. Zetwerk offers high-quality production, globally competitive costs and unparalleled lead times in the manufacturing of capital goods, consumer goods and precision parts. Click here to read more.
Write to us at partners@caretcapital.in to help your company transition to the new-age models of on-demand and distributed procurement, production and distribution.
Disclosure: Stylumia, Omnivio and Superprocure are Caret Capital portfolio startups.
About Caret Capital:
Caret Capital is a sustainability fund investing across mobility, distribution and employment — the three interconnected aspects that are critical to India’s growth story.
Caret360 is the CXO community powered by Caret Capital. By nurturing innovation and helping industry pilot & adopt them, we enable companies to improve profitability, quality, scalability and sustainability.
About the Authors:
