The Supply Chain Matters blog provides a reference to one financial risk assessment provider’s proprietary data identifying inventory stocking vulnerabilities of suppliers due to the ongoing COVID-19 pandemic.
In a previously published Supply Chain Matters editorial commentary, Just in Time Inventory Management Methodology May Be Little Help During and After the COVID-19 Coronavirus Outbreak Without Modification, this Editor declared that an obvious learning that will come from this ongoing COVID-19 Coronavirus global-wide outbreak will be the ultimate stress testing of Just-in-Time (JIT) inventory management methodologies, and with that, the need for the weighting of supply chain risk mitigation or domestic sourcing considerations in inventory management policies.
While Just In Time inventory management provided increased efficiencies for many industry supply chains, COVID-19 provides the wake-up call that such processes need to be enhanced to be able to mitigate extraordinary unplanned events or business shocks.
Supporting Quantitative Data
In a recently published internal blog posting, financial risk management quantitative technology provider RapidRatings disclosed details of a State of Supply Chain survey conducted last month.
This survey reportedly included responses from 1300 globally located private companies and included industries and countries most impacted by the COVID-19 pandemic to-date. (Italy, China, South Korea, Japan and the United States). The survey additionally studied the inventory levels of thousands of private and public companies within the RapidRatings datastore.
Among the highlighted findings were:
Thus far, 40 percent of companies have had to close facilities while that number was 18 percent, globally.
Regarding lean or Just-in-Time inventory strategies: “59 percent of U.S. companies say they don’t have enough inventory reserves on hand to continue shipping more than two weeks after ceasing to manufacture. Globally, the figure was 47 percent, with only 33 percent of Chinese companies saying they would no longer deliver after 2 weeks.”
Accompanying Figures that contrast measures of inventory against cash or current liabilities ratios such as Days Inventory Outstanding and Cash-Current Liabilities, provide important insights. Noted are that private companies have significantly less reserves compared to public companies. U.S. companies have the lowest capacity of inventory hedge (noted as 52 days of inventory for privates), but in-turn, have higher cash levels, an indicator of an ability to bounce back more quickly.
Industries noted as having low or alarming inventory reserves are noted as Retail, Wholesale, Food, Drink and Tobacco, which are typically retail centric.
The RapidRatings blog concludes from its survey data that for globally based private companies, 30 percent of such companies have fewer than 30 days of inventory. That condition is summarized as flows:
“Clearly, the ability of global supply chains to continue to function in a prolonged pandemic is called into question given the dominance of private company suppliers, and the fact that almost one-third have less than 30 days and in total 71 percent reporting less than 90 days of inventory.”
Readers wishing to explore this survey, along with other analysis data in more detail can access the RapidRatings COVID-19 Research Center.
To continue to do our part in sharing important information related to the coronavirus impact on multi-industry supply chains, Supply Chain Matters will cite additional research being made available on this inventory management policy topic along with related areas as we become aware.
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