As the end of the year approaches our attention turns to reviewing results for the last year and planning for next year. This year managers have to consider a new set of facts.
Supply chain issues still abound
Last year inventory managers could not get their goods becuase of snarled transportation routes. Remember the pictures of crates stacked at major trading ports? Transportation is no longer the issue as transportation costs are back at pre-pandemic levels with plenty of capacity. Now supply chain issues are related to production delays. Meaning that lead times are longer and purchase orders need to be placed sooner.
Inventory carrying cost have increased
When interest rates where at 3%, perhaps you where able to carry some excess inventory. Now that interest rates are at 6% each $100 dollar in inventory that you don't sell cost you $6. Moreover, you probably raised the salaries of your warehouse staff which puts more pressure on margins. Generally you should carry enough inventory to satisfy lead time demand plus safefty stock.
Buying patterns have changed (again)
You no doubt have heard the stories about shortage of flu medication. Why did this happen? Did CSV not get their inventory on time? No! What happened was faulty forecasting. During the pandemic, instances of the flu where way down. What do most purchasing managers do? They base their purchases on the previous year. They simply didn't purchase enough because they based their purchasing descions on prior year with no quanlification. When forecasting your purchases, don't just blindly base it on last year.
Don't wait to take the hit
Many companies overstocked on items that are just not in demand anymore. They are lucky if they get their money back but most likely they will need to discount and unload it. Yes, this sounds painful becuase it is. But there are 2 very good reason to mark down slow moving and obsolete inventory. 1) you get a tax deduction. 2) you are more likely to liquidate it and make room for inventory that sells.