Demand & Inventory Planning

Winning Supply Chain Procurement Strategies for 2022

Demand & Inventory Planning
January 10, 2022
10 min read

Should you change your supply chain procurement strategy in light of continuing supply chain disruptions?

The 2021 holiday shopping season was characterized by high freight rates, elevated lead times, and over-crowded warehouses. Many merchants were concerned about having enough inventory to meet demand, and consumers wondered if they would be able to secure holiday gifts for loved ones.

Supply chain procurement strategies had long been favoring Just in Time procurement. However, after a year and a half of increased consumer demand and manufacturing shutdowns that significantly stressed the supply chain, many merchants began planning early for the 2021 holiday season.

According to a 2021 survey, 43% of merchants ordered holiday inventory earlier than usual, and 44% ordered more than usual. After analyzing our merchants’ holiday sales data, we saw that often, those who ordered more inventory earlier had more successful BFCM (Black Friday/Cyber Monday) sales. So, should merchants change their supply chain procurement strategies as they head into 2022? Should they be moving away from a Just in Time procurement method to Just in Case?

Counting the Costs: Which Supply Chain Procurement Strategy Is Right for Your Business?

The answer to this question is complex. Just in Time procurement is a risky approach, as analysts predict that supply chain disruptions may continue well into 2022.

On the other hand, a Just in Case model is capital-intensive. Not only are manufacturing costs still elevated, storage rates are historically high. At current warehouse storage rates, merchants may end up paying more to store their inventory than they can make back in profits once it’s sold.

For these reasons, it may be time to think about buying smart rather than buying long. In other words, a winning 2022 supply chain procurement strategy will involve narrowing down your current SKU catalog so you can focus on only your most profitable products. This process will include:

  • Evaluating COGS (Cost of Goods Sold) at a SKU level
  • Measuring the MSRP value of products against the cost of storage (ideally 7%-12% of monthly costs)
  • Identifying which products are actually selling fast enough (ideally turning once per quarter for industries outside of apparel and footwear) to drive revenue

Having a leaner SKU catalogue will keep merchants nimble as they face what’s forecasted to be another tumultuous year for supply chains. The benefits of focusing on your top revenue-driving SKU’s include:

  • Higher Margins: Cutting the fat out of your product catalogue leaves you with inventory that you know will turn quickly, ultimately resulting in higher margins and sustainable growth for your business.
  • Decreased storage costs: Fewer SKU’s will have a smaller footprint within the warehouse, allowing you to carry more units of your best sellers.
  • Simplified inventory distribution: With a smaller warehouse footprint, merchants can easily distribute their inventory to lower their final mile time in transit (TNT) and meet customer expectations for delivery.

Big Picture Thinking

Ultimately, the goal of any supply chain procurement strategy should be to increase margins. This means thinking about not only the cost of purchasing goods, but the end-to-end supply chain costs of actually getting them on the shelves and ready to sell. 

The greatest opportunity for cost savings in the supply chain for most merchants is freight.  The freight market has been highly volatile over the last two years, and small to mid-sized businesses (SMB’s) can protect their margins by prioritizing efficiency in freight forwarding.

Legacy retailers may seem to have the upper hand when it comes to negotiating freight rates or securing space on a truck or container ship at all. However, end-to-end supply chain partners like Ware2Go provide merchants of all sizes with connections and partnerships that can help them employ some of the same measures major retailers took to overcome last year’s supply chain challenges.

Below are four ways that we have enabled supply chain procurement and freight solutions to help businesses of all sizes compete and grow.

  • Streamlined Transportation: 

The traditional method of replenishment is to ship a container of a limited quantity of  SKU’s into LA, dray that container to a transload facility, break up and palletize the products, then send LTL shipments to multiple fulfillment centers across the country. This method requires several touches on inventory as it moves through the supply chain, which can make simply getting products on the shelves and ready to sell incredibly costly when accounting for labor costs and ultimately slows down time to revenue.

We’re helping merchants reduce touches on their inventory and negotiate dedicated FTL lane rates to Fulfillment Centers. These enhancements to the first mile will drive down replenishment costs to Fulfillment Centers and reduce time to revenue, allowing merchants to make procurements with higher free cash flow. 

  • Decreasing Transit Time on Inbounds:

For merchants who still need to import a full container to the West Coast of a limited number of SKU’s, we’re offering solutions state-side to lower time in transit (TNT) into their fulfillment network and ultimately decrease final mile freight costs. 

Through our partnerships with cross-docking warehouses, we helped merchants get their containers out of busy and crowded ports in 2021. Containers were hauled to a facility close to the port, palletized, and sent directly to fulfillment centers. 

We were able to further reduce freight costs by consolidating our merchants’ freight shipments and negotiating dedicated lane FTL rates as opposed to costly LTL rates. This is a strategic advantage for merchants as sales deadlines approach.

  • Secondary Ports:

The ports of LA and Long Beach are some of the busiest in the world. The congestion at these ports was front page news for most of the 2021 holiday season. There are alternative ports up and down the East and West Coasts, and even along the Gulf in cities like Houston. However, the costs of importing into one of these ports can sometimes be four times higher than LA or Long Beach. There are, however, four main instances when it may make sense to pay more to import into one of these secondary ports. 

  1. Seasonal Inventory: Is this inventory that has to be on the shelves in time for a big promotion or sales season? Is it at risk of obsolescence? If the answer is yes, the opportunity cost of lost sales may be greater than the additional cost of importing into a secondary port.
  2. Capital Investment: For most merchants, inventory is their greatest capital investment. As long as that investment is sitting out at anchor, they won’t be able to see any returns on that investment. If your business needs to generate revenue in order to purchase the next round of inventory, it may be worth incurring the extra cost to start seeing returns sooner.
  3. Proper Planning: Proper planning with your manufacturers and Freight Forwarders will result in a predictable schedule for Freight Forwarders to plan for. This generally results in more competitive pricing. Plan ahead and lock in a commitment, this can lead to a more efficient cost for alternative ports
  4. Increased LTL Costs: As the freight market remains volatile, the cost of drayage from the Port of LA to Fulfillment Centers can add a significant amount of cost per unit. Reducing the number of touches on inventory will result in a much more economical cost per unit to the end customer.

Managing Existing Inventory

With warehouse vacancy rates at record lows, many merchants may be wondering where they will actually put their inventory once they get it stateside. There are record levels of inventory in the US, and much of it has been sitting on shelves for a long time. If you’ve been holding on to slow-moving inventory or dead stock, you may need to think about freeing up some shelf space to replenish more of your high-velocity SKU’s.

Many merchants will need to take a long, hard look at what they currently have in storage, and if slow-moving SKU’s are eating into their profits, they can take one or both of the following steps:

  1. Move slow-moving inventory into deep storage in the middle of the country. Storage rates in less optimal locations will be less expensive and make more sense for low velocity products.
  2. Liquidate obsolete inventory. Products that haven’t moved in over a year may need to be donated or sold to a bulk discount reseller. In order to mitigate the loss of liquidation, merchants should be looking to recoup 10%-50% of their investment either through a tax write off or deeply discounted sale. The longer they sit on obsolete inventory, the less potential they have of salvaging cost.

Data Driven Supply Chain Procurement

Ultimately, the supply chain procurement strategy that will win 2022 and beyond is one that is backed by data and reliable demand forecasting. Ware2Go’s supply chain technology seamlessly integrates WMS, TMS, and OMS data to give merchants a deep understanding of their inventory management.

This data can show 

  1. Which SKU’s are best sellers
  2. Which are the most profitable
  3. Where should inventory be restocked and
  4. When and what should be reordered 
  5. What and where are the non-moving SKU’s

To learn more about Ware2Go’s supply chain technology, reach out to one of our in-house experts today.

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