Effective inventory management is among the clearest measures of a business’s success — and one of the biggest challenges that supply chain teams face.
The pandemic served as a stark reminder of how quickly demand patterns can shift. When COVID-19 hit, demand surged for consumer goods that people could use at home, while it dropped off for automotive and industrial end-markets. Those supply and demand dynamics essentially flipped once the pandemic eased.
Now, as economic headwinds impact markets like consumer goods, smartphones and communication infrastructure, we’re seeing more suppliers simultaneously dealing with inventory overhang and sluggish demand. The disruptions caused by these shifts have been compounded by geopolitical tensions and changes in sourcing patterns.
To navigate these challenges, companies are largely sticking with tried-and-true inventory management strategies. According to Jabil’s 2024 Supply Chain Resilience Survey of nearly 200 supply chain and procurement decision-makers:
- 77% of respondents use safety stock inventory
- 77% practice just-in-time inventory management
- 69% use ABC analysis and segmentation.
While traditional strategies are fundamental, the current supply chain landscape requires a more agile approach to inventory management. Relying solely on a “just-in-time” strategy is no longer valid. What works now is a hybrid approach that combines just-in-time management of predictable items and just-in-case management of critical or high-risk products.
To strengthen their inventory management practices, companies need to think collaboration and optimization using people, process, and technology. Following are six strategies to consider.
Forge strong supplier relationships. A foundational element of effective inventory management is close collaboration with partners. It’s crucial to work in tandem with suppliers to validate shared data and ensure you’re aligned on procurement roadmaps. With a mutually beneficial partnership that both parties can lean on when times get tough, you can navigate disruptions and build a more resilient supply chain.
Optimize processes through continuous improvement. The processes that worked 10 years ago might be insufficient to meet today’s challenges. Methods such as Lean Six Sigma and embracing automation can significantly enhance operational efficiency. Additionally, by assessing your current technology stack and investing in the right digital tools, you can support your current inventory management goals, create alignment with your future roadmap, and enable scalability.
Deploy artificial intelligence and machine learning. While AI and machine learning are still in their infancy, these technologies can create predictive insights and algorithm-based forecasting methods, when combined with practitioner expertise.
Focus on resiliency. Inventory management strategies are measured by traditional metrics such as inventory turnover (used by 77% of Jabil survey respondents), accuracy of forecast demand (57%), and gross margin return on investment (54%). At the same time, it’s important to measure resiliency. This includes the number of backorders, capacity utilization, production cycle time, and inventory of components compared with finished products. These metrics help companies assess their ability to handle disruptions and maintain an uninterrupted supply chain.
Embrace sustainability. Companies should evaluate their sourcing partners and practices to reduce their carbon footprint throughout the supply chain, including reverse logistics and waste reduction. By aligning inventory management practices with sustainability goals, companies not only enhance brand reputation, but also meet evolving customer expectations and governmental regulations.
Prioritize external partnerships. By outsourcing inventory management and warehousing to external partners, companies can access specialized expertise and technology. In the process, they free up internal teams to focus on their core competencies. An external partner can also help with benchmarking against competitors and tailoring inventory management best practices to a company’s specific industry, while drawing on knowledge from other industries.
Strengthening inventory management practices isn’t just about addressing current challenges; it’s about positioning your business for long-term success. By developing strong partnerships, continuously improving processes, and deploying cutting-edge technologies, companies can build more resilient inventory management strategies — and gain a competitive advantage in the disrupted global supply chain.
Priya Anand is director, logistics services at Jabil.