For some years now stock has been a dirty word in the minds of many supply chain strategists. The advent of lean supply chains has led us to believe that stock ties up capital and is simply unnecessary in the modern connected world.
And yet at a recent meeting of supply chain leaders the discussion took on a very different flavour. Stock is now being seen as a strategic tool to defend a business from the risk of supply chain disruption; and let’s face it there have been plenty of those lately – tsunamis, earthquakes, floods, financial collapse, the list goes on. Businesses with little or no stock have ground to a halt within days or even hours of a disruptive event. But not just businesses – whole supply chains. Memory chips are still in short supply, some car parts are still in short supply – months after the Japanese earthquake. Far from saving money, low stock levels have proven to be extremely expensive for companies with little to buffer them from such events.
In the 80’s and 90’s verbal battles took place between some academics advocating lean supply chains and others fighting for agile supply chains. Supply Chain Managers, in some cases having missed the point, said they wanted both whilst at the same time extending the supply chain through direct sourcing from the Far East or moving manufacturing out there. The emerging evidence is that, as some suspected, you cannot have all of these without exposing yourself to significant risk.
So how is stock managed? We need to be aware that there are two types of stock. First is the type that balances the economic order quantities and delivery patterns against the planned sales patterns. So for example if you order 1000 pieces at a time with a 1 month leadtime but sell singles daily, then stock will be needed to balance the in and outbound flows. That bit is easy. Harder to judge is the second type – safety stock. This is the stock you need to protect you from the unexpected – for when sales volumes suddenly rise or a delivery is late or, as we were discussing above, there is supply chain disruption, like a Tsunami in Japan. It is this safety stock, there to protect you from supply chain disruptions, that Supply Chain Professionals should now be looking much harder at to see if it is sufficient to protect against the various risks we face.
Of course its not just about stock. Having alternative sources of supply, alternative product designs and other strategies for satisfying customer demand will all help in a crisis (and these must be taken into account in assessing the risks you face). But stock will always be the final back stop that keeps your business flowing.
So don’t treat stock as a dirty word. Making sure you have the right stock, and for the right reasons, so that the next time your supply chain gets hit by the proverbial bus, it won’t prove terminal.