Retailers are reviving an old playbook to manage their inventory levels after four years of struggling to find the sweet spot of holding enough merchandise but not too much, reports The Wall Street Journal (Jan. 24, 2024). They have worked through the excess inventory that piled up on store shelves and in warehouses over the past 18 months, and are now focusing on replenishing items rather than stocking up on goods to have on hand in case of supply-chain disruptions.
The shift marks a return to the “just-in-time” inventory management strategy (our topic in Chapter 16) that many companies had employed before pandemic-driven product shortages and volatile shifts in consumer demand prompted a switch to a “just-in-case” stockpiling approach. Companies are now better able to predict shopper demand and feel they can hold leaner inventories amid moderating spending growth and fewer supply-chain disruptions. They prefer not to hold large inventories because the excess stock ties up capital, requires more space and people to manage it, and runs the risk of becoming outdated as trends change.
“Retailers have more confidence in the overall supply chain and the logistics network and the environment, and as a result, they’re saying we’re at a point now where we’re safe to go back to JIT,” says Ohio State U. Prof Terry Esper. The SCM head at Tailored Brands adds: “The ability to react to changes in demand means the company has no need for ‘safety stock’ inventory.”
Retailers such as Walmart have rolled out technology aimed at fixing forecasting tools that were broken during the pandemic as they seek to better understand what consumers are buying and more accurately predict demand. The technology is allowing merchants to have smaller, more accurate shipments than they have in the past. “We’re able to better predict lead times, we’re able to better execute review cycles, and as we do that better, we’re able to hit target inventory levels,” says Walmart’s VP for SCM.
Still, new supply-chain disruptions could prompt a different approach and bring in more excess stock. Recent attacks by Houthi rebels in Yemen on containerships have pushed companies to reroute shipments over longer distances to avoid the Suez Canal, and low water levels at the Panama Canal have slowed some deliveries.
Classroom discussion questions:
1. Why the return to JIT?
2. Will there be less volatility in supply chains from this point on?
