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Inventory management and securing supply in a competing market

Supply chain recommendations for managing inventory

Optimizing inventory, managing forecasts and securing supply is critical for developing and launching new consumer products.

We can call it the “Amazon effect.” The way that the company operates is moving the whole market. Recent reports estimate that as many as three-quarters of American households have Amazon Prime membership,[1] and that means that those consumers are used to having any product they want to be delivered to their home within the next day or two. In the United States, Amazon even offers Sunday delivery.[2]

Globalization, where customers can buy the same product in different markets, and digitalization of retail, are two trends which are elevating the consumer experience. Customers have moved from wanting good service to demand a great experience.

That puts all of the pressure on vendors and OEMs to have sufficient inventory ready to ship. Selling on marketplaces such as Amazon or Alibaba requires that they have enough stock for same-day shipping. There is nothing worse than hanging the “out of stock” sign on a website.

Additionally, during high-turnover sales periods and special campaigns, retailers require minimum inventory levels to advertise or promote products, putting more pressure on vendors to have higher inventory levels ready to deliver.

Forecasting is the most critical business practice

Manufacturers and suppliers can benefit from a strong relationship with retailers. For example, while 40 percent of smartwatch sales occur between Thanksgiving and Christmas, that still means that 60 percent of sales occur before that period. Those early sales can be used as a first indicator of where demand may be for the holiday season.

Working with channel partners is part of the equation to produce a reliable forecast and avoid having inventory problems. What’s more, manufacturing needs to prepare sound forecasts of components required and the capacity of production lines to meet demand in peak periods.

Manufacturers and suppliers selling in international markets also need to be aware that the same product can have different SKUs, depending on location, and that the same model can be made with different features for different markets, making it difficult to rotate inventory between international locations.

Securing the supply of components and quality control

Securing component supply is critical to meeting demand. As mentioned above, working on having a realistic forecast is the most effective business strategy.

Deviations from the forecast, however, continuously occur, especially in heavily competitive markets like consumer electronics. Even some of the world’s largest smartphone manufacturers still have problems in accurately predicting sales of a new product.[3]

An essential tool is BOM optimization [link to the other “manufacturing” article]. Having the flexibility to switch components and optimize the supply chain quickly can ensure production when the availability of certain parts is scarce.

Special care is needed when procuring end-of-life components. If the need for those components is not carefully estimated, manufacturers can be in a situation of there being no more supply to meet demand or ordering more units than necessary and having difficulties returning or selling them.

Also, components need to be certified that they come from reliable, legal sources and that their quality is thoroughly inspected to protect the final product and users.

Keeping a large inventory increases financial costs

Every manufacturer or integrator knows about the substantial financial cost of maintaining a large stock of unsold goods or components.

Balancing between sufficient inventory and liquidity is a very complicated exercise. OEMs need their stock to manufacture products and convert it to sales quickly. Inaccurate forecasts, parts on allocation, and slow logistics slow down the chain.

Furthermore, accounting regulations in many countries require that unsold inventory on hand at retail partners is still counted as the vendor’s own inventory because it can be returned at any point by the retailer. That affects quarterly reports and stock performance

Most retailers and local distributors require the vendor to provide inventory insurance policies such as stock rotation—wherein they can exchange unsold SKUs for others—and price protection in case there is a new, lower price for existing inventory.

Some manufacturers consider the rotation of stock to be essential to maintaining a positive public image, especially when launching a new model.

Obviously, if a large inventory of an existing model is still unsold on-premises or in the channel, the cost of rotation of those units to replace them with the new model could be enormous.

Arrow can help manage your inventory and supply chain

As a global organization maintaining an inventory of millions of components and final products, Arrow has unmatched experience in supply chain and inventory management.

Arrow can help in planning your inventory needs from components for production to supply chain and logistics for your final products. Using order automation, Arrow can optimize the forecast of your production needs and place orders for the needed components in advance to ensure on-time production.

Arrow’s landed-cost optimization services help manage logistics and orders to optimize the cost of transport and delivery and to secure economies of scale.

Additionally, when moving products in international markets, bonded, duty-free warehousing can be provided to reduce the cost of inventory until it is necessary to release it.

Arrow has primary distribution centers and warehouses strategically located to service all major continents.  With a strategic network of transportation and trade compliance partners, we can manage inventory in very close proximity to your end-customers, including last-mile logistics.

Interested in learning more?

For more information on this topic, or to get in touch with engineering specialist who can help answer any questions you might have, head to arrow.com

Resources:

[1] “The Amazon stat long kept under wraps is revealed” 18 Apr. 2018, https://www.washingtonpost.com/news/business/wp/2018/04/18/the-amazon-stat-long-kept-under-wraps-is-revealed-prime-has-over-100-million-subscribers/. Accessed 6 Dec. 2018.

[2] “Does USPS really deliver packages on Sundays? – General Selling ….” https://sellercentral.amazon.com/forums/t/does-usps-really-deliver-packages-on-sundays/88203.

[3] “Samsung Electronics Q2 misses forecast as smartphone worries deepen.” http://www.ft.lk/article/161649/Samsung-Electronics-Q2-misses-forecast-as-smartphone-worries-deepen

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