Supply Chains Fail to Keep up With Inventory Replenishment Requirements

January 22, 2021


Empty shelves, not available online, back ordered, permanently out of stock etc., inventories struggled to keep up with rapid shifts in demand last year as COVID-19 took its toll. Retailers struggled to quickly adapt to a more omnichannel approach in sales as consumers hesitated to shop in-person.

While monthly retail sales remained robust, the sales were primarily due to strong growth in online ordering. As a result, e-commerce as a percentage of total retail sales was 16.1% during the second quarter, when the pandemic first hit the US, up 44.5% from the second quarter in 2019 and was 14.3% during the third quarter, up 36.7% from the third quarter in 2019.

The latest US Census’ inventory to sales ratio* (adjusted for seasonality) for November remained little changed compared to the previous month.

Adjusted

 

Nov 2020
Inventory to Sales Ratio

 

Oct 2020
Inventory to Sales Ratio

 

Nov 2019
Inventory to Sales Ratio

 

Total Business
1.32 1.32 1.39
Manufacturers
1.41 1.41 1.40
Retailers
1.26 1.23 1.44
Wholesalers
1.31 1.31 1.33

 

However, unadjusted, which may be the better measure for such an extraordinary year, higher inventory to sales ratios for total business, wholesalers, retailers and manufacturers were reported for November. Good news as retailers worked to build up inventories for the holiday season but levels still remain below 2019 levels.

Not Adjusted

 

Nov 2020
Inventory to Sales Ratio

 

Oct 2020
Inventory to Sales Ratio

 

Nov 2019
Inventory to Sales Ratio

 

Total Business
1.37 1.31 1.43
Manufacturers
1.45 1.37 1.44
Retailers
1.30 1.28 1.47
Wholesalers
1.35 1.26 1.37

 

Inventory replenishment has been a struggle for retailers and manufacturers as COVID-19 closed stores and manufacturers for a period of time but then once reopened were faced with shortages in parts, delays in delivery and higher prices.

The shift from in-store purchases to online purchases also has played a role in the need for more frequent inventory replenishments as customers continue to expect 1-2 day deliveries and as we approach the Chinese New Year, Feb. 12, when many Asian manufacturers shut down operations, inventory replenishment is intensifying.

According to Reuters, as of Wednesday, Jan. 21, 27 arriving container ships were waiting for berths to clear at the Ports of Los Angeles and Long Beach terminals which were piled with cargo from previous shipments.

The two ports account for nearly half of all U.S. maritime trade and about 70% of the US’ imports from Asia and since last summer have witnessed record imports. However, as noted in the Reuters article, an estimated 2,000 dockworkers have been idled due to COVID illness or quarantine.

 

The latest NRF Port Tracker indicates continued growth in imports for the first quarter of 2021:
  • January is forecast at 1.96 million TEU, up 7.7% from a year ago which would make it the busiest January on record.
  • February at 1.6 million TEU, up 6.1% year-over-year.
  • March at 1.64 million TEU, up 19% from March 2020, when factories in China failed to reopen after the Lunar New Year holiday because of the coronavirus.

 

Until the COVID vaccine is distributed throughout a larger percentage of the population, delays within supply chains will continue. Retailers and manufacturers alike are adapting as well but will face delays within supply chains and higher costs to adapt to the changing environment and to the increase in transportation demands from the first mile through to the last mile.

 

*According to the Federal Reserve Bank of St. Louis, “the inventories to sales ratios shows the relationship of the end-of-month values of inventory to the monthly sales. For example, a ratio of 2.5 would indicate that the retail stores have enough merchandise on hand to cover two and a half months of sales.”

 


ABOUT SPEND MANAGEMENT EXPERTS

Spend Management Experts provides strategic guidance to optimize your supply chain. Using cost modeling technology and market intelligence, we help companies with their transportation, distribution and fulfillment spend. Often large shippers can reduce their spend across the supply chain by 20% or more. We specialize in reducing distribution costs, increasing efficiencies, dynamic reporting, greater budgeting and forecasting accuracy and optimizing supply chain execution. We leverage our proprietary models to identify savings and build negotiation strategies based on data and business cases. As industry experts, our fresh approach provides clients with straightforward details on exactly how savings are derived. Spend Management Experts is your competitive edge, delivered.

Connect with Spend Management Experts on TwitterLinkedIn, and the Spend Management Experts blog.

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Supply Chains Fail to Keep up With Inventory Replenishment Requirements

January 22, 2021


Empty shelves, not available online, back ordered, permanently out of stock etc., inventories struggled to keep up with rapid shifts in demand last year as COVID-19 took its toll. Retailers struggled to quickly adapt to a more omnichannel approach in sales as consumers hesitated to shop in-person. While monthly retail sales remained robust, the sales were primarily due to strong growth in online ordering. As a result, e-commerce as a percentage of total retail sales was 16.1% during the second quarter, when the pandemic first hit the US, up 44.5% from the second quarter in 2019 and was 14.3% during the third quarter, up 36.7% from the third quarter in 2019. The latest US Census’ inventory to sales ratio* (adjusted for seasonality) for November remained little changed compared to the previous month.

Adjusted
 
Nov 2020
Inventory to Sales Ratio
 
Oct 2020
Inventory to Sales Ratio
 
Nov 2019
Inventory to Sales Ratio
 
Total Business
1.32 1.32 1.39
Manufacturers
1.41 1.41 1.40
Retailers
1.26 1.23 1.44
Wholesalers
1.31 1.31 1.33
  However, unadjusted, which may be the better measure for such an extraordinary year, higher inventory to sales ratios for total business, wholesalers, retailers and manufacturers were reported for November. Good news as retailers worked to build up inventories for the holiday season but levels still remain below 2019 levels.
Not Adjusted
 
Nov 2020
Inventory to Sales Ratio
 
Oct 2020
Inventory to Sales Ratio
 
Nov 2019
Inventory to Sales Ratio
 
Total Business
1.37 1.31 1.43
Manufacturers
1.45 1.37 1.44
Retailers
1.30 1.28 1.47
Wholesalers
1.35 1.26 1.37
  Inventory replenishment has been a struggle for retailers and manufacturers as COVID-19 closed stores and manufacturers for a period of time but then once reopened were faced with shortages in parts, delays in delivery and higher prices. The shift from in-store purchases to online purchases also has played a role in the need for more frequent inventory replenishments as customers continue to expect 1-2 day deliveries and as we approach the Chinese New Year, Feb. 12, when many Asian manufacturers shut down operations, inventory replenishment is intensifying. According to Reuters, as of Wednesday, Jan. 21, 27 arriving container ships were waiting for berths to clear at the Ports of Los Angeles and Long Beach terminals which were piled with cargo from previous shipments. The two ports account for nearly half of all U.S. maritime trade and about 70% of the US’ imports from Asia and since last summer have witnessed record imports. However, as noted in the Reuters article, an estimated 2,000 dockworkers have been idled due to COVID illness or quarantine.  
The latest NRF Port Tracker indicates continued growth in imports for the first quarter of 2021:
  • January is forecast at 1.96 million TEU, up 7.7% from a year ago which would make it the busiest January on record.
  • February at 1.6 million TEU, up 6.1% year-over-year.
  • March at 1.64 million TEU, up 19% from March 2020, when factories in China failed to reopen after the Lunar New Year holiday because of the coronavirus.
  Until the COVID vaccine is distributed throughout a larger percentage of the population, delays within supply chains will continue. Retailers and manufacturers alike are adapting as well but will face delays within supply chains and higher costs to adapt to the changing environment and to the increase in transportation demands from the first mile through to the last mile.   *According to the Federal Reserve Bank of St. Louis, “the inventories to sales ratios shows the relationship of the end-of-month values of inventory to the monthly sales. For example, a ratio of 2.5 would indicate that the retail stores have enough merchandise on hand to cover two and a half months of sales.”  

ABOUT SPEND MANAGEMENT EXPERTS

Spend Management Experts provides strategic guidance to optimize your supply chain. Using cost modeling technology and market intelligence, we help companies with their transportation, distribution and fulfillment spend. Often large shippers can reduce their spend across the supply chain by 20% or more. We specialize in reducing distribution costs, increasing efficiencies, dynamic reporting, greater budgeting and forecasting accuracy and optimizing supply chain execution. We leverage our proprietary models to identify savings and build negotiation strategies based on data and business cases. As industry experts, our fresh approach provides clients with straightforward details on exactly how savings are derived. Spend Management Experts is your competitive edge, delivered. Connect with Spend Management Experts on TwitterLinkedIn, and the Spend Management Experts blog.

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