Evolution of Inventory Management: Opportunities and Risks in Disintermediation

Over the past decade, inventory management has evolved, with significant developments taking place in the technologies involved in these processes. Disintermediation has played a major role in this transformation as well, with more manufacturers looking to reduce the number of entities in their supply chains to cut costs and inefficiencies.

Suffice it to say, these movements have presented immense opportunities to businesses, but not without challenges.

Manufacturers might be trying to enact disintermediation tactics, but they need to be careful given the ways in which inventory moves in and out of their warehouses, which tend to be less suitable for dealing directly with consumers. Amazon and others are getting ahead of the curve, but they are still not necessarily considered true manufacturers, instead acting as the distribution and retail components of the chain at the same time.

Changes are Forcing Businesses to Re-imagine the Supply Chain

Regardless of how far a manufacturer or distributor is in their disintermediation innovation, market changes are forcing all members of the supply chain to rethink strategies and modernize quickly. Distributors, manufacturers and retailers that do not wake up to the demands and preferences of the modern marketplace will rarely be able to survive or maintain financial stability.

From the manufacturing and distribution perspective, inventory will have to be a focal point in planning and preparing for a transformation. Seeing as disintermediation is at the heart of so many different changes, as well as the concept of re-intermediation in which structures are changed but the supply chain remains somewhat intact, this is a good place to start the inventory conversation.

Modern Inventory Management

The concept behind inventory turns needs to be properly understood. Faster-moving, higher-volume items are complemented by slower, lower-volume products and managing the inventory of those assets from the time they enter the supply chain to their eventual sale is a sophisticated process. This is not to say that manufacturers cannot possibly handle the tasks, but certainly dictates that they are not the best positioned to do so.

Distributors and retailers put an immense amount of effort, time and technology to keep their inventory in check - no matter the items. There is very little chance, at least at this stage of the game, that manufacturers would be able to conduct these activities as well as their counterparts in the supply chain and, considering the impact inventory has on the bottom line, it would not be financially sound to do so in many situations.

Another benefit that the two parties in the middle provide is that they are consolidating widely varied demand, as well as all the inventory and the downstream demand. There are a few examples where it works, but there are also many where it does not. There will always be a diverse product mix, and the order volume and scale will fluctuate rapidly, so the frequency at which orders come in and the size of them can be very large, complex and confusing, from a delivery point perspective.

This segues nicely into the next point, which is the management and maintenance of inventory. When a manufacturer ships inventory, it typically ships containers full - truckloads full - of palletized inventory. Sometimes those shipments will come in a large box on a slow boat across an ocean.

A distributor takes the inventory and breaks it down into smaller, more easily consumable and efficient quantities. The point is to meet the demands by fulfilling very small or very large and complex orders.

What About Actual Delivery?

From a delivery standpoint, many manufacturers do not have a distribution network, and they do not operate their own trucks capable of making these frequent, local deliveries. They typically operate a set of regional warehouses that are geographically disbursed and strategically located to reduce delivery time and shipping costs.

Finally, a manufacturer's business is to purchase raw materials, push those through the shop and production process, come out with an end product and ultimately sell through the supply chain, either directly to the consumer or through the traditional steps. For this reason, the idea of total disintermediation becoming a widespread trend in manufacturing is currently half-baked.

Still, distributors need to recognize the end games taking shape among their partners and clientele, and strive to provide more value-add through services related to delivery, inventory management and sales.

Tribridge offers manufacturing and distribution solutions that will help your organization face a myriad of challenges in today's economy. Read our white paper, Continuing Evolution of Wholesale Distribution for a more in-depth look at how to streamline your organization.

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