Graph stock held by manufacturers and retailers, as measured by Days of Supply in Inventory (DSI), has actually risen over the past ten years

Inventory levels booming, not receding

It could be assumed that several decades after supply chain management practices such as ‘lean’, ‘build-to-order’ and ‘just-in-time’ became accepted across industry, inventory levels would have seen a steady and inexorable decline.
However, the latest report by Transport Intelligence, Inventory Benchmarking Vertical Sector Trends, has found that the stock held by manufacturers and retailers, as measured by Days of Supply in Inventory (DSI), has actually risen over the past ten years.
This data, based on the financial reports of 187 manufacturers and retailers located around the world reveals that, on average, companies in 2017 were holding ten more days’ stock than in 2008: increasing from 80 to 90 days.​ The research also found that the retail industry operates with the lowest average DSI: 33 days in 2017. At the other end of the spectrum, the pharmaceutical sector operates with an average of 186 days.
One of the authors of the report Professor John Manners-Bell said this indicates that reducing inventory levels is just one of a number of competing goals for many companies.
“Despite the textbooks telling us that inventory reduction should be the main goal for supply chain managers, the present market environment requires a far more sophisticated approach, balancing a range of important objectives,” Professor John Manners-Bell said.
Examples of this new approach include Walmart, which now regards the availability of stock to purchase by consumers as a major factor in its existential battle with Amazon, despite the inevitable consequence of higher inventory.​ Lenovo and Hewlett Packard took a similar approach to building up inventory in order to maintain product availability in physical stores in contrast with Dell’s lean inventory strategy.​ Risk is also a factor, as companies seek to avoid the supply chain problems they faced after a number of high profile disruptive events in the early part of the decade, such as the Thai floods and Japanese tsunami.
Co-author Andy Ralls added: “A focus on achieving an appropriate amount of inventory is and always will be hugely important to efficient supply chain management. However, as our research shows, competing priorities, be they driven by e-commerce, changing customer demands, product development, risk or even regulatory requirements, have caused many companies to fundamentally assess their supply chain strategies.”

About Inventory Benchmarking Vertical Sector Trends

A critical benchmark for inventory management, Inventory Benchmarking Vertical Sector Trends compares many of the world’s leading manufacturers and retailers against key financial supply chain metrics.
In particular it:

  • Defines the key ratios available from financial disclosures.
  • Conducts a by-industry vertical sector analysis of inventory management and benchmarking data for the high tech, automotive, retail, pharmaceutical, fashion and consumer goods industries.
  • Examines the supply chain and inventory management strategies of selected blue chip companies with reference to these benchmarks.
  • Where available, examines the different types of inventory held by these companies and how these have changed.
  • Compares and contrasts the performance of these companies.

More information is available here.

The automotive supply chain is about to go electric

BMW’s Mini production line in Oxfordshire, UK. Photo courtesy of the BBC.

Jess Dando

New research from Transport Intelligence (Ti) has found that automotive supply chains will undergo a radical transformation over the next decade as the internal combustion engine is phased out in favour of alternative propulsion systems.
It is clear that electric vehicles will play an important, even defining, role in the industry’s future. This will mean that the supply chain for the entire powertrain will be transformed and the types of components, the logistics processes employed to move them, the markets of origin and destination as well as the tiered character of automotive supply chains will fundamentally change.
Key findings in the new report – Ti Future Mobility: Electric Vehicle Supply Chain Architecture – include:

  • As the dominant technology in electric vehicles, battery manufacturing processes will transform the automotive supply chain.
  • Battery or battery pack producers with high volumes will drive out lower volume manufacturers, including many vehicle manufacturers’ own in-house operations.
  • Supply chain and logistics provision will adapt to the geography of battery and electric component production locations.
  • The integration of the battery-pack and associated drive-train elements will create a distinctive ‘propulsion platform’.
  • The complex and deeply integrated tier-system of suppliers feeding in the components will change fundamentally.

While batteries are complex pieces of engineering, they are much more straightforward to insert into a vehicle than an internal combustion engine. Plugging in the electric motors to the battery is a comparatively simple process. With no welding shop, no engine plant and a higher level of outsourcing to new component suppliers, the automotive assembly facility will shrink in scale along with its logistics requirements.
“Conventional vehicle manufacturers define assembly as a core-competence but with the changing nature of operations, this may no longer be the case. It may be that, in time, automotive manufacturers’ come to focus on the design and marketing of their product, in the way that Apple does,” said Nick Bailey, Ti’s Head of Research and the report’s co-author.
The impact of the reduction in parts and the elimination of tiers of suppliers in the powertrain supply chain might be considered to be traumatic enough for the automotive supply chain. However, in addition to this, the process of the manufacturing of batteries in terms of materials, skills and existing production structures has developed outside of the main automotive powerhouse economies. Japan, South Korea and China are dominant in the sector, sourcing their raw materials from Asia, Africa and Latin America. Europe and North America have, with a few exceptions, been side-lined in the development of new technologies of batteries as well as in the manufacturing know-how.
One important discrete aspect of any EV supply chain that will make it distinct from IC supply chains is the differing nature of the interconnection of components. Whereas the relationship between components in IC vehicles is predominantly kinetic, the relationship between electric and electronic components is reliant on the movement of electrons. This means that the nature of different component’s interfaces are very different. This obviously has major supply chain implications.
“Fundamentally there is a shift in the nature of the components used, from mechanical engineering to electrical and electronic engineering,” said report co-author Thomas Cullen, senior analyst at Ti.  “The economics of both designing and producing these components is very different. This has enormous implications for how the automotive supply chain is ordered.”

E-commerce logistics market growth starting to slow

The latest report from Ti shows a market still expanding rapidly, but one in which competition, challenges and new entrants are raising questions over future development opportunities
The global e-commerce logistics market grew by 18.2% in 2018. Still a relatively nascent sector, e-commerce logistics growth is well above that seen in other logistics markets. Emerging markets are showing the fastest expansion, but even in developed economies, growth rates in nominal terms are usually in double-digits. Ti expects the global market to grow at an expected nominal 2018-2023 compound annual growth rate (CAGR) of 11.8%.
Ti’s latest figures suggest the cross-border component is a significant driver of this uplift. Cross-border e-commerce is bringing supply chain stakeholders into direct contact and challenging the status quo. But while gaining access to millions, if not billions, of new customers is an attractive proposition for e-commerce companies, targeting purchasers in foreign markets is not the easiest of strategies.
The report also examines the trend for offering more omni-channel retail solutions, likely to be a key requirement moving forward. This is largely driven by the purchasing behaviour of consumers, who demand a seamless experience enabled by the use of different channels to order, pay, collect and return products. They demand more delivery and returns options and leverage retailers against each other to get the best value for their money.
In addition, Global e-commerce Logistics 2019 examines e-fulfilment and last mile cost structures, and provides analysis of structural variations by geography and retail sector.
The report authors spoke extensively with senior management and leaders at the largest e-fulfilment and last mile providers globally, as well as with niche e-commerce logistics providers. A common theme was the threat posed by global retail platforms managing their own logistics requirements whilst also offering services to third parties.
The entry of players such as Amazon, Alibaba and JD.com is forcing many to consider what the future of e-commerce logistics might look like. The report’s lead author, Viki Keckarovska, senior research analyst at Ti, said: “While some would say that Europe’s legacy infrastructure and market structures are unfit for the new e-retail world, it could equally be argued that Europe boasts probably the most efficient logistics and transport sector in the world. Ti’s discussions with logistics executives and leaders in the market suggest Europe’s legacy infrastructure is seen as a hindrance to the development of efficient e-retail distribution networks, with facilities in the ‘wrong’ place and markets which were more focused on B2B rather than B2C deliveries.”

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