Growing uncertainties in global supply chains necessitate a fresh approach to inventory strategy, says Warren Owen, vice president solutions consultants with Netstock.

The world of logistics and supply chain is experiencing “all sorts of uncertainty,” says Owen. “Everybody’s being tested.” And when it comes to making crucial decisions about inventory, they’re asking: “Why do I keep getting it wrong?”

To make matters worse, the cost of being wrong today is rising. Perishable products face expiration dates. Penalties for failure to meet customer demands and order promises are mounting. It’s dawning on companies that they need a new approach to inventory planning.

The first requirement, Owen says, is creation of an “early warning system” — one that signals when service levels are about to be challenged by unanticipated events. “If I can get a clear signal, I can do more,” Owen says. “I can analyze the impact, figure out what penalty will hurt the most, and what I am most exposed to.”

The time horizons for planning are shrinking. Six months used to be sufficient to set an inventory plan. Now, with markets changing so rapidly, that window is narrowing to weeks, even days.

The next step is being able to act on early warnings. When a delay or disruption is signaled, shippers should be able to make adjustments on the fly — switch, for example, from ocean to air freight. “You lose margin, but you have a little more certainty about not losing a customer.”

Retailers and distributors need to break out of the firefighting mode, wherein they’re dealing solely with the crisis of the moment, and take a longer view of inventory strategy. (Many companies don’t even have one, Owen says.) They must realize that the business, including product mixes and customer demands, is constantly changing, and be able to adjust accordingly.