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

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

• Sensationalism. As supply chain has come into mainstream awareness, journalists have attempted to explain a very complex set of conditions in simple terms (Everything You Need to Know About the Global Supply Chain Crisis). While most experts did not see the crisis coming, there are now many predictions about its future (The Supply Chain Crisis is About to Get a Lot Worse).
• Parody. This rise of supply chain awareness has also found its way into social media and popular culture with humorous effects (Blaming My Lack of a Husband on the Supply Chain Crisis). Even the most lighthearted narratives reflect the instinctive habits within many organizations — when a convenient patsy is needed, everyone can agree to point towards supply chain (We Can Stop Blaming the Supply Chain Now).
• Misdirection. One popular approach is to pivot towards long-term strategy without addressing immediate tactical challenges (Supply Chain as a Partner for Growth). There are some topics and trends for which every new event leads us back to the same conclusion (5 Reasons Why We Need to Focus on Sustainability Not Despite But Because of the Crisis). Consequences and solutions sometimes get confused (Ukraine Crisis Will Speed Energy Transition in Mid-Term, Says Renewables Agency Chief).

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)).

• There will always be risks and constraints, with no excuse for assuming otherwise. But we only need to plan around the dominant constraints and risks (Elevate Supply Chain Impact by Aligning Tactical Responses With Business Constraints (subscription required)). Are we constrained by demand, supply or margin?

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
Paul.Lord@gartner.com

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