The inventory levels of manufacturers and retailers have been rising for the past 10 years, according to a new report by Transport Intelligence (Ti).
The report, “Inventory Benchmarking Vertical Sector Trends,” observed that inventory levels should have seen a steady and inexorable decline several decades after supply chain management practices such as “lean,” “build-to-order” and “just-in-time” became accepted across the industry.
Instead it found that the stock held by manufacturers and retailers, as measured by Days of Supply in Inventory (DSI), has actually risen over the past ten years.
This data, based on the financial reports of 187 manufacturers and retailers located around the world, reveals that, on average, companies in 2017 were holding 10 more days of stock than in 2008, increasing from 80 to 90 days, said Ti, a leading source of market research and intelligence for the global supply chain and logistics industry.
The research also found that the retail industry operates with the lowest average DSI: 33 days in 2017. At the other end of the spectrum, the pharmaceutical sector operates with an average of 186 days.
This indicates that reducing inventory levels is just one of a number of competing goals for many companies, according to report co-author Professor John Manners-Bell. “Despite the textbooks telling us that inventory reduction should be the main goal for supply chain managers, the present market environment requires a far more sophisticated approach, balancing a range of important objectives.”
The report cited Walmart as an example of this new approach, as the retail giant “now regards the availability of stock to purchase by consumers as a major factor in its existential battle with Amazon, despite the inevitable consequence of higher inventory.”
Lenovo and Hewlett Packard took a similar approach to building up inventory in order to maintain product availability in physical stores in contrast with Dell’s lean inventory strategy.
Risk is also a factor, as companies seek to avoid the supply chain problems they faced after a number of high-profile disruptive events in the early part of the decade, such as the Thai floods and Japanese tsunami.
Co-author Andy Ralls added, “A focus on achieving an appropriate amount of inventory is and always will be hugely important to efficient supply chain management.
“However, as our research shows, competing priorities, be they driven by e-commerce, changing customer demands, product development, risk or even regulatory requirements, have caused many companies to fundamentally assess their supply chain strategies.”
Photo: Nick Saltmarsh
