Inventory levels booming, not receding

Inventory levels booming, not receding

It could be assumed that several decades after supply chain management practices such as ‘lean’, ‘build-to-order’ and ‘just-in-time’ became accepted across industry, inventory levels would have seen a steady and inexorable decline.

However, the latest report by Transport Intelligence, Inventory Benchmarking Vertical Sector Trends, has found that the stock held by manufacturers and retailers, as measured by Days of Supply in Inventory (DSI), has actually risen over the past ten years.

This data, based on the financial reports of 187 manufacturers and retailers located around the world reveals that, on average, companies in 2017 were holding ten more days’ stock than in 2008: increasing from 80 to 90 days.​ The research also found that the retail industry operates with the lowest average DSI: 33 days in 2017. At the other end of the spectrum, the pharmaceutical sector operates with an average of 186 days.

One of the authors of the report Professor John Manners-Bell said this indicates that reducing inventory levels is just one of a number of competing goals for many companies.

“Despite the textbooks telling us that inventory reduction should be the main goal for supply chain managers, the present market environment requires a far more sophisticated approach, balancing a range of important objectives,” Professor John Manners-Bell said.

Examples of this new approach include Walmart, which now regards the availability of stock to purchase by consumers as a major factor in its existential battle with Amazon, despite the inevitable consequence of higher inventory.​ Lenovo and Hewlett Packard took a similar approach to building up inventory in order to maintain product availability in physical stores in contrast with Dell’s lean inventory strategy.​ Risk is also a factor, as companies seek to avoid the supply chain problems they faced after a number of high profile disruptive events in the early part of the decade, such as the Thai floods and Japanese tsunami.

Co-author Andy Ralls added: “A focus on achieving an appropriate amount of inventory is and always will be hugely important to efficient supply chain management. However, as our research shows, competing priorities, be they driven by e-commerce, changing customer demands, product development, risk or even regulatory requirements, have caused many companies to fundamentally assess their supply chain strategies.”

About Inventory Benchmarking Vertical Sector Trends

A critical benchmark for inventory management, Inventory Benchmarking Vertical Sector Trends compares many of the world’s leading manufacturers and retailers against key financial supply chain metrics.

In particular it:

  • Defines the key ratios available from financial disclosures.
  • Conducts a by-industry vertical sector analysis of inventory management and benchmarking data for the high tech, automotive, retail, pharmaceutical, fashion and consumer goods industries.
  • Examines the supply chain and inventory management strategies of selected blue chip companies with reference to these benchmarks.
  • Where available, examines the different types of inventory held by these companies and how these have changed.
  • Compares and contrasts the performance of these companies.

More information is available here.

MREC HERE

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