Plan Ahead for 2023: Propose Actions Now to Avoid an Inventory Surprise Later

By Paul Lord | December 13, 2022 | 0 Comments

Supply ChainPower of the Profession

The challenges and chaos of the past three years have generated a collection of divergent supply chain narratives. Here’s a sampling:

What Have We Learned?

Most supply chains have now experienced a full economic cycle, beginning with disruptions in 2020, followed by severe shortages, price inflation and reversal of many post-pandemic demand surges. We are being told that this recession will be different (Quick Answer: Preparing the Supply Chain for a Recession in a Supply-Constrained Market (subscription required)). While this is likely true, we don’t need a custom playbook for each new scenario.

Supply chain serves as a stabilizing rudder that guides the business through turbulence by always training its focus on mission and objective — balancing supply and demand for optimized network performance.

  • Supply chain will always be challenged to balance between short- and long-term business objectives. While we need to understand the perspectives of financial and commercial stakeholders, we can’t fulfill the supply chain mission by adopting them. Instead, we align the organization around operating decisions that account for risks and constraints in achieving and sustaining total network performance (see Toolkit: Playbook for Cost-Optimized Supply Chain Performance (subscription required)).

This supply chain operating lens serves as a fulcrum for satisfying both short-term finance expectations and long-term commercial aspirations. Gartner has seen that, without this fulcrum, organizations will oscillate between extremes that cannot be sustained while remaining in constant conflict.

How Do We Proceed into the New Year?

With concerns about recession risk and questions about 2023 demand, let’s ask our business and financial stakeholders the following question: “Are you prepared to sacrifice some margin in return for better balance and lower inventory risk?” Develop and propose three options for consideration.

  • Rebalance working capital with capacity economics. Higher inventory costs should be countered with reduction of discretionary supply quantities, where constraints allow, to reoptimize this balance (Quick Answer: Adapt Supply Plans in Response to High Inflation and Recession Risk (subscription required)). More frequent replenishments will also enhance responsivness to demand changes.
  • Pay for the flexibility of postponed supply commitments. Commit to suppliers in advance based on more conservative, high confidence demand projections. Respond to demand upsides with more responsive supply that has higher cost but lower risk of residual excess inventory.
  • Provide incentives for firm, planned customer demand. Offer favorable terms (pricing or payment timing) to those customers who can commit to firm orders. Securing demand that can’t be cancelled or changed will close the commitment gap relative to the firm, advance commitments required to your suppliers.

When chaos and confusion reign, don’t allow prevailing narratives to distract from the mission. Take dominant risks and constraints into account to offer options that achieve network balance and provide discrete tradeoff choices between margin and inventory risk.

Paul Lord
Senior Director Analyst
Gartner Supply Chain


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