Coronavirus spurring new inventory replenishment strategies

Coronavirus spurring new inventory replenishment strategies

An increasing reliance on fast delivery to end consumers might help shippers cope with the COVID-19 crisis, because it entails decentralizing inventory close to urban demand locations. Photo credit: Shutterstock.com.

Shippers are focusing on new strategies to reposition inventory to replenish store shelves with critical items during the coronavirus disease 2019 (COVID-19) crisis, three leaders of prominent logistics technology companies said Wednesday.

Those strategies include having in-demand goods skip distribution centers to move straight to grocery stores and moving freight between distribution centers to have it available in a more timely fashion. That cargo owners have already begun to change how they balance the need for supply and pressures to keep inventory low speaks to the scale in which the pandemic could transform conventional logistics planning. 

“Everyone is thinking, ‘How quickly can I get this into a store, knowing it will sell out right away?’” Dan Lewis, CEO of the Seattle-based freight broker Convoy, said during a Future of Freight webcast with Ryan Petersen, CEO of the San Francisco-based forwarder Flexport, and Karl Siebrecht, CEO of the Seattle-based on-demand warehousing technology provider Flexe.

Lewis noted that manufacturers of food items are dealing with a new dynamic: higher demand through a smaller number of channels, because restaurants are no longer pulling in goods at the same rate as before the health crisis emerged.

“We need to revisit how things are different in a few weeks,” Siebrecht said. “What is the right balance in inventory, and should we revisit assumptions? Dependency on global supply chains vs. domestically produced goods. Things will probably become more surgical. People are going to ask, ‘what’s my risk to replenish this inventory? If it’s high, I should have more inventory, if it’s lower, I should have less.’ So there will be more sophistication around this.”

To hold or not to hold inventory?

When asked whether shorter delivery expectations from consumers was complicating the current situation, Petersen said one- and two-day delivery promises from retailers might actually be helping.

“The way you get fast delivery is having more inventory stashed in more places around the country,” he said. “On some level, fast delivery is a positive force, because it means you have more inventory, which will make supply chains more resilient in some instances. The problem is trying to merge just-in-time (which is built around minimizing inventory levels) and fast delivery. We have a whole generation of MBAs who have been taught inventory is evil, but just-in-time does contain systemic risk.”

Siebrecht added that he doesn’t see fast delivery as a liability, but that “not all product needs to be delivered quickly and not all consumers want fast delivery for all products.”

“You need flexibility, and the nature of those products and SKUs change over time,” he said. “Our customers have fixed nodes and flexible nodes. The flexible ones handle products that are seasonal, fast movers, or things like now that need to get there really fast, like consumables and medical supplies. Flat-screen TVs can take a backseat for the moment.”

Lewis said Convoy has been helping its customers deploy inventory between distribution locations, so they can be more quickly distributed around the country. “That’s just started,” he said. The company is also being asked to handle more of its customers' transportation management as shippers transition to work from home environments.

He also said that he expects Convoy and other trucking brokers to benefit from shippers’ reticence to invest in owned assets during periods of uncertainty. “When you can’t predict what will happen, you generally invest in third parties that own the assets, not in your own assets,” Lewis said.

Siebrecht, whose model allows shippers to contract warehousing space on a short-term and modular basis, said much the same. “Companies don’t want to commit big chunks of capital right now,” he said. “But if you still need the capacity, and you can pay in a variable cost way, they’re going to do that all day.”

Contact Eric Johnson at eric.johnson@ihsmarkit.com and follow him on Twitter: @LogTechEric.