One of the concerns for many companies working to decrease their inventory levels is the impact that such a reduction will have on customer satisfaction. They worry that they won’t be able to meet a sudden surge in demand, and, consequently, customer satisfaction will decline.
However, a new report by Tompkins Supply Chain Consortium found that while more than half of the companies surveyed decreased inventory levels in 2009, customer satisfaction remained the same or even improved for nearly 80 percent of the participants.
In 2009, companies worked very hard to reduce inventory levels to improve cash flow and positively impact company financials, says Bruce Tompkins, the Consortium’s executive director and author of the report. The expectation was that order fill rates would be negatively impacted as shortages and stockouts became increasingly prevalent. However, the reality is just the opposite: Order fill rates actually improved, Tompkins says.
According to the Tompkins report, which is based on the results of the firm’s Finished Goods Inventory Management survey of leading manufacturing and retail companies, companies found ways to substantially reduce their finished goods inventory levels even as the economy slowed and sales consequently dropped. Chief among the top tactics cited for inventory improvement are smarter planning, improved focus from management, and better inventory mix.
Considering on-going fears about the economy as well as news from the Labor Department that new applications for unemployment benefits recently rose by 12,000 to 500,000—the highest level since November and the third straight increase—those lessons and tactics will continue to play a critical role for many companies and their supply chains. Demand is likely to remain quite volatile and it certainly makes sense to minimize inventory while focusing on improving customer satisfaction.
But, it isn’t just demand that’s volatile. Results from a recent survey from MFG.com, an on-line marketplace for manufacturers, point out some interesting statistics as well. Indeed, some 51 percent of large U.S. manufacturers reported “significant supply chain disruptions” in the second quarter, while 42 percent of small and medium-sized suppliers said they had received queries or work from larger companies in need of urgent assistance due to their supply chain problems, MFG.com.
What’s more, those shortages have effected a range of products. Leading suppliers of everything from earth-moving equipment and commercial aircraft to autos have felt the impact of suppliers not being able to deliver what’s needed on-time and in sufficient quality.
The impact can be substantial. Last April, Jeffrey Immelt, chief executive of General Electric told investors that anybody in the electronic supply chain has seen the tightness around certain components. Keith Sherin, GE’s chief financial officer, added that roughly $50 million worth of revenue might have been hung up at the end of the quarter in the supply chain.
I’d like to know if you have noticed the same thing. Are both your supply and demand volatile, and, if so, how are you managing them?