The 27th Annual State of Logistics Report shows that inventory levels are down and logistics costs are rising.
Given the extreme demands of the hundreds of millions of online consumers who expect free shipping and fast delivery, e-commerce interrupts transportation budgets and regular shipping strategies. In 2015, transportation costs rose 1.3% year-over-year.
Retailers, manufacturers and suppliers hold inventory to reduce costs and/or to improve customer service. Having too much inventory can cause excess merchandise to be wasted, and not having enough inventory can leave customers without the products they ordered.
According to the State of Logistics 2016 report
- Between 2009 and 2015, inventory levels rose about 5% annually, well above gross domestic product growth.
- These years are typically associated with economic growth, so it’s logical that inventories rose, as businesses restocked, gained demand, and fulfilled e-commerce orders.
- In 2014-2015, inventories flattened. Projections anticipate an ongoing decline this year and next.
Inventory is a substantial asset in most companies – today, businesses have costly inventory loads. At the end of 2015, inventory value stood at $2.51 trillion. The US inventory-to-sales ratio has been steadily climbing.
Advantages to Low Inventory Levels
- Reduced holding costs: Inventory holding costs include everything from the utilities used in the space to labor handling the inventory.
- Better management: Less inventory is easier to manage, store and retrieve.
- More capital and more space: it can be expensive to carry inventory. Maintaining moderate inventory frees up working capital. Less inventory creates more space, overcoming the need to have extra space for surplus product.
Inventory is a key measure of supply chain management; it determines where supply meets demand. Lower inventory levels reduce acquisition and holding costs, but increase the cost of direct or indirect stock outs.
Shippers are paying attention to the economy – holding excess inventory isn’t an efficient strategy. Overall, companies are better managing and optimizing stocks, reaping efficiency and productivity with accurate forecasting.
Smaller inventories free up cash, space and management. Low inventory levels are not an indication of poor forecasting or inaccurate transportation scheduling. Rather, it showcases a company’s streamlined supply chain management strategy – where processes have been assessed, cycle times have shortened, and the company operates efficiently and productively.