How the Pandemic Changed Inventory Management

When you’re operating with multiple branches, inventory visibility is critical. But when the pandemic happened, 78% of supply chains were disrupted, making it the most significant impact in a decade, according to research by Jabil. Several consequences of the pandemic have made lasting impressions on inventory management, including the effects of labor shortages, especially in manufacturing; demand uncertainty and fluctuation; extended and unpredictable lead times; and truck, container, and shipping slowdowns.

If the key to successful inventory management is having the right inventory in the right location at the right time, distributors need to know how much to order and when and where it all needs to go.

Here’s the lasting effect of the pandemic.

Sourcing Product

The pandemic greatly affected how distributors source product. According to research from IndustryWeek and Jabil, manufacturers now realize the importance of supplier relationship management, but it remains a sore spot for distributors. A quarter of respondents from a recent MDM survey with Sikich said sourcing product remains a major concern for their companies.

They want:

  • Better Communication
    In an ideal world, manufacturers alert their distributors immediately when they’re experiencing backorders or delays, which allows distributors enough time to tell their own customers about the issue or pivot quickly to another trusted vendor to fulfill the order.Viewing your company’s supply chain in a silo, instead of a collaborative environment, can complicate this issue further.When communication is lacking between manufacturers and distributors, customer satisfaction suffers, which hurts both sides. To maintain positive relationships with vendors, distributors need to embrace transparent communication and efficient ways to collaborate.
  • Clear Visibility into Vendor Performance
    Part of a distributors’ job in maintaining customer satisfaction is practicing consistent vendor performance management and clearly articulating to vendors what those measurements of quality are—and what happens when they fall short. Common areas of measurement are order accuracy and quality, pricing, on-time delivery, and customer service. This data can be stored in Microsoft Dynamics 365 Finance and Supply Chain Management. When suppliers are aware of the expectations, consistent communication also becomes more important to them, as well.
  • Alternate Sources of Supply
    When inventory visibility is lacking or a product shortage impedes production, distributors have learned that they need to have a roster of reliable vendors on hand so they can shift to other sources of supply when needed. The majority of distributors have diversified their supply base to mitigate supply chain challenges and to meet customer needs. According to research by MDM and Sikich, fill rate was a top source of concern and reason for looking for multiple streams of inventory due to the pandemic.

How They Stocked

The pandemic highlighted a weak spot for many distributors—they lacked crystal clear insight into their supply chain. When distributors can’t get an accurate read on their inventory, stocking becomes an issue. Understocking results in unhappy customers who can’t get the products they need, while overstocking creates pressure on the bottom line.

  •  A New Perspective on “Just in Time” Inventory
    “Just in time” inventory has gotten a bad reputation as a result of the pandemic due to a lack of on-hand supply should demand skyrocket or lead times grow. There’s little margin for error when you operate “just in time.”Many distributors are still striving for a lean stock, but with a little extra; consider it inventory padding or safety stock. However, this method of inventory management has to be managed carefully to avoid incurring long-term expenses in stagnant inventory.Working with multiple suppliers can offset the potential side effects of lean inventory management, as can technology. With Dynamics 365 Finance and Supply Chain Management, distributors can avoid unnecessary carrying costs by using automated reordering and setting product minimums and maximums to trigger replenishment.
  • Adoption of Technology for Improved Data Forecasting
    Customer demand is a finicky thing. The pandemic showed the worst of supply chain swings, ebbs, and flows. In the situations when customers couldn’t get what they wanted from their preferred distributor, they had no qualms with looking elsewhere for what they needed or buying a substitute product to maintain the relationship. They may have even placed the same orders with multiple suppliers as a backup, and then canceled the orders that didn’t come through first. These situations can murky the forecasting waters.When distributors implement technology for help with accurate data forecasting, those one-off situations of having to buy a replacement/temporary product become just that: a one-time scenario. Distributors gain insight, using historical data, into what customers traditionally buy and when, so they can stock accordingly.When you break down data silos across your company, you unlock valuable insights, leading to strategic growth, greater efficiencies, and increased resiliency. Dynamics 365 Finance and Supply Chain Management’s priority-based planning feature can be used to configure optimal replenishment based on demand priority, current stock levels and projected inventory.
  • Embracing Warehouse Automation
    More than half of distributors in the survey we conducted with MDM use a warehouse management system to generate more efficient operations—and rightfully so. An improperly managed warehouse leads to redundancies, disorganization, damaged or lost product, and being under- or over-stocked.The heart of distribution is in the warehouse, and with the assistance of technology, you can optimize the layout of warehouses and distribution centers; streamline the picking and packing process; automate previously paper-based processes; and improve communication with suppliers (because you have the insight into your inventory that you need).

The Key to Reliable Inventory Management

In a study we did with IndustryWeek, we found that 93% of respondents experienced some kind of supply chain setback in recent years. Some of the most commonly cited issues were late deliveries from suppliers (73%), inventory shortages (63%), missed or late deliveries to customers (61%) and increased supplier lead times (58%).

But distributors are a resilient group, and with the aid of Microsoft Dynamics 365 Finance and Supply Chain Management, you can grow even stronger. Only 10% of the distributors we surveyed with MDM said they were “killing it” with their inventory management. Overwhelmingly, at 71%, distributors said they could be doing better.

Let us help. Reach out today to learn how Microsoft Dynamics 365 Finance and Supply Chain Management can help you overcome the challenges of the past.

This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. In addition, this publication may contain certain content generated by an artificial intelligence (AI) language model. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.

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