Meeting a customer’s needs, on time, is the cornerstone of any distribution business. But the challenges of the past two years have made that bedrock task harder to perform for businesses of all types in the U.S. supply chain.
Software solutions provider Blue Ridge Supply Chain Planning and digital media company SmartBrief conducted a study of distributors, manufacturers and retail operations across all industries to rate the state of the supply chain in 2022. It’s the fourth time the survey, which is authorized by the National Association of Wholesaler-Distributors, has been conducted, though no survey was done in 2021.
While sales at these companies gained ground across the board in 2022 compared with the prior year, up 13 percent, the challenges associated with procuring and transporting material caused serious harm to participants’ customer service. In 2022, almost half (49 percent) of the participants reported an inability to meet customer demands more than four percent of the time. In 2020, the year the pandemic began, only a quarter of the respondents failed in that category.
The natural response to this concern, for many participants, is to build up stock levels. That’s particularly true of the warehouse/distribution segment, where almost 40 percent of respondents had supplies of 61 days or more.
Blue Ridge authors caution against this approach.
“As businesses fight to pinpoint consumer demand, they continue to pad up inventory to help mitigate uncertainty. A more cautious approach should be considered when moving forward to better understand the tradeoffs and the risk modeling to help minimize this problem,” they wrote. “More inventory is not the solution. Right inventory and a lean supply chain that can quickly react to macroeconomic changes are the ingredients to success.”
Among the challenges respondents cited were long lead times, named by 76.4 percent, more than double the number who listed that issue in 2020. Increasing supplier collaboration needs also saw an uptick to 44.2 percent from 36.3 percent two years earlier.
Complex patterns of customer demand and increased volatility from new customers and competition were cited by more than half of the respondents, but actually came down from the survey taken two years earlier, suggesting these are more persistent issues for chain participants.
Over the past year, it was much easier to achieve sales goals than other financial metrics, largely due to the increased cost of all goods, including theirs. While 33 percent of respondents reported reaching or exceeding sales goals in 2022, only 11 percent achieved their return on investment goals, 14 percent hit customer service goals and nine percent met inventory goals.
“Aggressive goals from the previous year, the inability to pass costs to consumers and the mismanagement of unwanted inventory are factors in less-than-optimal or nonexistent ROI,” the authors concluded.
One potential response to the challenges inherent to supply chain management is to employ technologies for forecasting and scheduling. While such programs are gaining some traction, the adaption rates remain slow. Almost 40 percent of respondents still don’t use any planning or production scheduling tools as part of their sales and operations planning process.
Even for those who have done work, there remains skepticism. Asked whether companies’ current supply chain planning and inventory optimization processes allow them to take advantage of macroeconomic trends, only 26.7 percent answered an unqualified “Yes,” while almost as many respondents, 22 percent, said “No.” While those are improvements from 2019, it demonstrates there’s still a long way to go before supply chain participants fully embrace these tools.
The authors disagreed with that skepticism. “Continued economic and consumer unpredictability make utilizing tools such as forecast reconciliation, external data and scenario planning essential elements for success across every industry.”