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Supply chain

What now for supply chains?  Inflation, e-commerce and over-stocking are all driving change

IbyIMD+ Published 17 March 2022 in Supply chain • 5 min read • Audio availableAudio available

Economic growth is being driven in part by supply chain dynamics. The confluences of forces might bring about a new paradigm in supply chain inventory management and perception of excellence, argue Ralf W. Seifert and Richard Markoff.


Inventories are front of mind

Quarterly US GDP would not normally be considered a matter for supply chain professionals, but we are in strange times. US GDP grew at an annualized rate of 6.9%, a robust figure that is being attributed in large part to inventory growth, as companies look to restore stock levels depleted by the global shipping crisis. It’s worthwhile to take this moment to consider the implications this, and other dynamics, may have on working capital levels and supply chain management as a whole in the coming months.

The Inventory Bounce

Reconstituting inventories right now may have surprising impacts on the long, and still sluggish, global supply chains. The restocking is in fact a form of “inventory bounce”. The increased production that enabled the increase in inventory levels in turn surely increased demand from upstream supplies, their upstream suppliers, and so on. The demand signals moving up the stream may be very difficult to identify and distinguish from genuine increases in demand. The risk for confusion is higher knowing that demand for goods is at an all-time high, as consumers spend less on services during the COVID-19 omicron wave.

This is a classic root cause for the bullwhip effect: the obscuring of true demand signals with changes in inventory holding policy. Surely not helping is the light being shone on just-in-time supply chains. Some companies may be looking to increase their baseline safety stock levels after the painful experience of the last few months of…

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