b"(continued from page 11)Cheap or not, inventory storage must be allocated The pandemic has really highlighted the need to selectively. Companies need to be thinking, what develop strategies to mitigate potential disruptions inmight be in short supply when we try to ramp up our the flow of critical components, says Palisin. Thatproduction? says Conerly. They may well buy a means doing a deep dive into the supply chain,years supply of a relatively cheap item that is a mapping the geographical locations of the first tier ofsmall part of what a company uses but is vital tosuppliers and learning about the reliance of secondproducing a finished product. tier as well. Despite the inventory mind shift, business owners Pandemic-related shortages have affirmed the needfeel that a return to the days of warehouses bulging for backup vendors even for lower volume items.with expensive inventory is not in the cards. Instead of relying on one supplier, a company mightEverybody has become accustomed to reducing have three to manage risks, says Jim Hannan, Prac- costs by minimizing touch points, moving goods tice Leader of Manufacturing, Distribution andfrom the ship straight to the distribution facility and Logistics service group at consulting firm Withumon to the customer, says one operator. Indeed, (withum.com). We expect this trend to continue withcooperative efforts with suppliers and customers may the advent of environmental, social governance (ESG)well help bring back a greater emphasis on JIT.I standards at larger companies.believe that the economy will eventually get back to When deliveries are spotty, companies are tempted tothat just in time concept as market disruptions lapse keep more stock on hand. Companies should noand the continued collaborative partnerships with longer rely on just-in-time inventory strategies, whichvendors and suppliers remain a priority, saystoo often have become just-too-late failures, andHannan. stockpile more supplies both in the United States andThe road ahead abroad, says John Manzella, a consultant on global business and economic trends, East Amherst, NYBusinesses face a conundrum as the world emerges (JohnManzella.com). This approach reducesfrom the pandemic: How quickly will demand efficiencies but favors risk reduction.increase for products and services, and will theCompanies are willing to turn upside down theincrease be steady or erratic? The wrong answers can traditional views of inventory control, given the result in a pile up of inventory or lost revenues and increased risk of shortages and customer goodwill.customers. The risk is especially great for consumer Many companies are investing more cash in and business goods requiring long lead times where inventories, and banks seem content with lendingbusinesses can't easily turn the supply chain spigot against that, says Hannan. on and off, says Hannan.While businesses must pay the price for bolsteringThe solution, says Hannan, is to develop a playbook inventory levels, such costs must be balanced againstto address possible disruptions and evaluate risks up operational expenses such as the need to pay higherand down the supply chain, then develop a plan to prices for goods when a company scrambles to filladdress those risks. And management must grapple customer ordersor lost revenues when an unhappywith other unknowns such as whether the recent customer jumps ship for a competitor. As theysurge in the price of manufactured goods can be balance such costs, many companies are viewingpassed along to the consumer.higher cashflow on the shelf as acceptable. Risk All this may soften profits until everything shakes mitigation has become more important than efficiencyout. Revenues will probably hold up or even gains, says Manzella.increase because of higher demand, but margins will likely be hit because of increases in the costs of raw Furthermore, three historic costs of inventories materials, labor, and inventory, says Palisin. Its a interest, obsolescence, and shrinkageno longer very unusual situation where all of these costuniversally apply. The interest rate you get forincreases are happening at onceand at a time when having cash in the bank now is approximately diddlytariffs are still in place. Companies just cant pass squat, says Conerly. And obsolescence would onlyalong everything to customers. be an issue if something were expected to go out of fashion. Many products in short supply today are theAs for the road ahead, Conerly anticipates a gradual same products as last year's model and they are notimprovement in the operating environment. Now going to go obsolete. Shrinkage, he adds, is not anthat people are able to travel, they may well return to issue in some industries and in others can be controlled with requisite security steps.(continuedto page 19)16"