The pandemic and resulting congestion in the supply chain have retailers reconsidering their traditional approach to sourcing and inventory management, says Larry Parker, department chair of transportation and logistics management, supply chain management, reverse logistics and government contracting at the Dr. Wallace E. Boston School of Business in the American Public University System.
Supply chain disruptions over the past two years resulted in a dramatic drop in retail inventory levels. “There was a bottleneck for a period of time,” says Parker. “Now we’re going to see a spike.”
The trend is due in large part to retailers moving away from just-in-time inventory strategies to the ordering of extra product as a buffer against continuing disruptions. But Parker believes that they have overcompensated to some extent, leading to a severe shortage of storage space throughout the supply chain. Warehouses are overflowing, and retailers are even having to employ containers as storage units because the product within has nowhere else to go.
It's not a question of waiting for consumer demand to soak up all that dormant inventory. Some items are out of season, and retailers can’t wait another year for them to become relevant again. The situation has caused some major retailers to write down large amounts of inventory, realizing that it will never make it to store shelves at full price.
The future will see retailers struggling to strike a delicate balance between the need to keep down inventory costs, and to have product on hand when customers want it. Parker says supply chain professionals will have a bigger voice in organizations, as companies move away from a pure focus on the price of manufacturing, and begin to take into account the cost of logistics and transportation as well.
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