Volatile times call for just-in-time solutions

By Alex Lennanehttp://www.blogger.com/profile/[email protected]

28/06/2011

A rare trip to the shops and the rapidly fading glory of London’s Oxford Street throws up some shocking surprises. Sales, sales, sales. 50% off this, 70% off that. Two major clothing brands have gone bust, home store Habitat has been sold. Electronics giant Philips has issued a shock profit warning. Electrical retailer Comet plans to close stores while rival Dixons admits to a “challenging” environment. The Home Retail Group’s Argos blamed a “significant decline” in sales of consumer electronic goods for a slump in profits.

You could blame a poor economy, and that is inevitably part of the problem – there is possibly rightful consolidation, as weaker, less efficient companies are forced out of the market. But perhaps the most striking thing is the inefficiencies in the supply chain and the poor inventory predictions of the retailers. An item featured in a magazine on Sunday was unavailable in the shops on Monday.

Inventory management, it seems, is out of control. Discounting – surely a byproduct of overstocking – is rife. It might be hard to convince companies desperately seeking to cut costs, but volatile times call for just-in time measures. As any airline knows, flexibility in uncertain times is essential. And this is where retailers seem to be failing.

GT Nexus recently revealed that one company had had to write off $1 billion worth of inventory, as a lack of control over its supply chain meant huge amounts of stock left in warehouses only for it to become obsolete by the time it reached the shelves. Despite all the focus currently on inventory management, companies are still markedly miscalculating their ordering.

Something is going wrong.

Forwarders are always keen to show how they are cleaning up the supply chain, removing inefficiencies. One tells of how a customer was buying stock in China, shipping it to its distribution centre in the US and then sending it out to its markets in Australia, Europe and Asia. The forwarder pointed out that they could send the goods faster, cheaper and more efficiently straight out of China to the end destination, saving the shippers millions.

So while supply chains can and are being streamlined, more focus needs to go on timely delivery. An article in Lloyds List recently showed how a company was spending weeks negotiating rates with shipping lines to squeeze the last cent out of them, only to be forced in the end to charter in a 747 at great expense to get the goods delivered on time.

Of course, poor supply chain management can work very nicely for the air cargo industry, always there to rectify mistakes. But more sustainable, surely, to argue that air cargo isn’t the mode of last resort, but an efficient and potentially cost–effective means of moving some goods – even, in some cases, cheaper ones than it currently moves.

As retailers move online, cutting real estate and operational costs, just-in time delivery and proper inventory management will become even more crucial. Market research company Verdict predicts that 31% of electrical goods sales in the UK will be online this year.

So what can air carriers do? Well, where there are inefficiencies, there are opportunities. They can argue that air cargo can be the most efficient and effective way of getting goods to the marketplace at the right time. Volatile times mean companies want to cut back on spending. But losing $1 billion in stock is far more wasteful than air freighting the right amount at the right time. And the industry needs to work out how it can convince its ultimate customers of that.