Inventory Woes: Too Little, Now Too Much

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By: Russell Pearlman

A year ago, the biggest inventory glut in the world was anchored just off the coast of Los Angeles. More than seventy massive cargo ships floated there futilely, unable—because of COVID restrictions—to offload cargo such as furniture, clothing, and microchips, as well as thousands of other types of raw materials and finished goods. The organizations that ordered all that stuff sat by helplessly, their warehouses and factories empty, their leaders lamenting that a shortage of nearly everything made it impossible for them to sell what their customers were demanding.

The glut, it seems, has finally made landfall. All that stuff has ended up in warehouses—tens of thousands of them, at tens of thousands of companies. Forced to offer discounts or unload their products onto the wholesale market, one company after another is watching profits sink. This is just the latest example of how tricky, in today’s post-pandemic world, supply-chain leadership can be. After all, just a year ago, many firms were focused—and spending billions of dollars—on overhauling their processes and practices. Companies didn’t want to be caught short again, the way they’d been at the beginning of the pandemic.

For their part, retailers have been caught off guard by a tumbling economy. “They went from having massive consumer demand to no consumer demand,” says Cheryl D’Cruz-Young, a senior client partner in Korn Ferry’s Supply Chain practice. To move their inventory, stores have been slashing prices. They’ve even been telling consumers to keep unwanted items instead of returning them to warehouses. But experts warn that other industries will likely be seeing gluts, too. Microchips, which were in a deep shortage just six months ago, are now available in abundance for most uses. Overall, new manufacturing orders slowed dramatically over the summer, and that could mean copper, steel, and other raw materials will be piling up at factories in the fall.

For supply-chain officers, the glut is just the latest addition to their own inventory of challenges. “Chief supply-chain officers are currently facing a triple challenge consisting of energy costs, energy security, and decarbonization,” says Sarah Watt, VP analyst with the supply-chain practice of the consultancy Gartner. Current and future gluts will only compound the issue.

Gluts and shortages didn’t just happen because of COVID-19, and they’ll keep popping up from time to time. But the worst potential outcome of the current glut, experts say, would be for leaders to second-guess the changes they made during the pandemic—or to put off needed upgrades now. “There is no return to 2019,” says Richard Wilding, professor of supply-chain strategy at Cranfield School of Management. Experts say that building in more resiliency in systems isn’t a bad thing, even if it occasionally leads to holding more inventory than you are used to. More organizations will likely look at automating systems that were previously reliant on humans.

The shortage—and now the glut—has also demonstrated that transparency and real-time information across networks are essential in order for firms to address problems quickly. Robots won’t solve those problems. “Supply-chain teams need to be agile,” Wilding says, able to find solutions when they are under pressure.