How do supply chain disruptions affect inventory management?

Supply chain disruptions can lead to inventory shortages or excesses, complicating inventory management.

When a supply chain is disrupted, it can have a significant impact on inventory management. This is because the supply chain is the network of businesses, individuals, resources, activities and technologies involved in the creation and sale of a product. It encompasses everything from the delivery of raw materials to the manufacturer, to the delivery of the final product to the consumer. Therefore, any disruption in this chain can cause a ripple effect, impacting inventory levels.

For instance, if a supplier is unable to deliver raw materials due to a natural disaster, strike, or other unforeseen circumstance, this can lead to a shortage of inventory. The manufacturer may not have enough materials to produce the desired quantity of the product, leading to stockouts. Stockouts can result in lost sales, as customers may turn to competitors if they cannot find the product they want. This can also damage a company's reputation, as customers may perceive it as unreliable.

On the other hand, a disruption further down the supply chain, such as a decrease in consumer demand, can lead to an excess of inventory. If a retailer overestimates the demand for a product and orders too much from the manufacturer, they may end up with a surplus of stock that they cannot sell. This can lead to increased storage costs and the risk of inventory obsolescence, as products may go out of date or become less desirable over time.

In both cases, supply chain disruptions can make inventory management more complex and challenging. Businesses need to have contingency plans in place to mitigate the impact of these disruptions. This could involve diversifying suppliers, maintaining a safety stock, or using sophisticated inventory management systems to better forecast demand and optimise inventory levels.