How companies can prevent storage and shortages

A product shortage can happen for multiple reasons and, recently and especially since the outbreak of the pandemic, we have seen some of the most harmful ones repeat themselves: looting, panic purchases and storage.

The first great example was the storage of toilet paper by many consumers at the beginning of the pandemic. Then, many cities also suffered from a shortage of food, masks, alcohol gel and even alcohol.

In Mexico, even the National Association of Self-Service and Department Stores (Antad) asked the population to control their purchases to maintain the supply chain. The representatives of the production chain also asked, through the National Agricultural Council CNA), that the population consume only what is necessary in terms of the vital food sector to guarantee the supply chain.

So, the same thing happened after the interruption of the Continental pipeline and the gasoline shortage, which consumers further aggravated by consuming much more than usual for fear of running out of gas.

Last July, South Africa showed the world scenes of violence, fire and massive looting with a human toll of 330 dead. Looters set fire to trucks and attacked warehouses. As a result, South Africa will now allocate more than €2 billion to different measures to alleviate the damage left by the wave of unrest and looting.

But it wasn't just the population that made the mistake of storing. We now see how the corporate version of this practice is reproduced: Many supermarkets are stocking products in order not to lose the ability to meet the demand for items that can become more expensive. Retailers try to keep costs down by buying too much of everything, that is, building up inventories. But once again, this growing backlog is exacerbating shortages and further stressing supply chains.

Even with different causes, the result remains a longer and more acute shortage.

However, there are lessons to be learned, and if organizations take advantage of them, they can create more flexible approaches to managing inventories in general, as warehousing is also ultimately a corporate issue.

Companies can and should avoid these instinctive and harmful reactions to sudden imbalances in supply and demand. As? Taking a broader view of the effects of supply chains to begin with by planning scenarios and avoiding short-term decisions that make things worse.

In summary, actions in these scenarios should be the result of a careful review of long-term market dynamics and a flexible approach to inventory management, not merely an instinctive increase in inventories.

Using analytics and collaboration to address scarcity

Some general strategies can concretely help to remedy problems related to shortages and pressures in supply chains. For example:

1. Prioritize critical shortages by supplier and buyer and identify root causes
Addressing scarcity by priorities allows you to identify the inventory that represents the most important costs that contribute to a given value chain. Understanding the root of scarcity also looks to the future and knowing how to better deal with scarcity.

 

 2. Monitor and optimize inventory levels
 Many manufacturers are opting for vendor-managed inventories to take some of the work out of oversight.

 A good practice is to regularly compare current inventory levels with minimum and maximum inventory requirements to help reduce costs associated with shortages and excesses of goods. In addition to overseeing data from ERP systems to find the optimal minimum and maximum levels for the organization.

 

3. Unlock the ERP system
 An ERP system should be taken full advantage of as it has a large amount of knowledge and the current data manipulation capabilities, which include big data and cloud computing, are enormous.

 All data must be kept in a centralized location where all decision makers can access it, so collaborative efforts across teams and facilities are easier. Furthermore, it is convenient to find a process to absorb, manipulate and process the data without manual work.

 

 4. Know the performance of providers
 Monitoring providers to have key performance indicators and metrics in real time is very important to set up improvement plans. As well as giving them visibility into PPV metrics to deal with non-standard variations.

 
5. Increase buyer transparency and accountability
By providing them with metrics across the entire buying process and having an end-to-end data view, a culture of transparency is cultivated. Buyers must see potential changes in demand, know important events in the supply chain as they happen, and be able to prepare for the ups and downs. Therefore, giving buyers these tasks helps reduce the stress associated with these unknowns.

Following these and other initiatives to reduce the impacts of ups and downs and crises on supply chains is the task and overall responsibility for organizations.