In a new report, Blue Ridge and SmartBrief explore how everything from shifting buyer preferences to long lead times to the rapid growth of e-commerce are making the balancing act of inventory management more difficult than ever in 2020.
The number of distributors holding 61 days or more of inventory has slowly ticked up over the past three years, while the number holding 19 to 60 days of supply has declined, according to The State of the Wholesale Supply Chain Industry 2020. “This indicates that the inventory management process is increasingly cumbersome as assortment breadth has become wider,” Blue Ridge states in its report.
Supply and Demand
A provider of supply chain planning and price optimization solutions, Blue Ridge also looked at the amount of demand that distributors can’t fulfill with the inventory that they have on hand. Just 3.36% of companies said they could meet all of their demand, with 24.83% falling short more than 4% of the time.
“More than 70% of wholesalers are keeping more than one month of inventory on hand,” Blue Ridge states, noting that as of October 2019, wholesale merchants were sitting on $1.27 of inventory for every $1 that they sell (U.S. Census Bureau).
Also see: “Beyond the Basics of Inventory Management.”
“This strategy holds even if businesses are worried about issues such as tying up working capital in inventory, expanding assortments to address customer needs and maintaining market differentiation, ensuring high service levels to support customer retention and other financial effects of inventory investments,” the report continues.
Asked to pinpoint their top inventory planning and forecasting challenges, 73% of wholesale distributors say they’re having a difficult time managing the complex patterns of customer demand (up from 72% last year), while 75% are struggling with the increasing volatility of demand (same as 2019). Other challenges include managing new product introductions, handling promotional activities and collaborating with suppliers.
Margin Pressure
Other key report findings include:
- Roughly 60% of surveyed distributors said costs for transportation, labor and goods were rising more quickly than in previous years.
- Increased lead times due to transportation problems also rose, making it challenging to respond to demand swings as quickly as online distributors and retailers.
- While operational expenses continue to climb, distributors are not able to pass those
on to customers.
“These higher costs coupled with the need to compete against e-commerce sites offering greater price transparency are putting pressure on operating margins,” Blue Ridge concludes in its report. “While distributors are managing through these challenges, it remains to be seen how long they can sustain this without some price optimization becoming necessary.”
