From scarcity to accumulation, is inventory management in a crisis, the mirror image of our economic model?

From scarcity to accumulation, is inventory management in a crisis, the mirror image of our economic model?

Everywhere you look, the global supply chain is a mess” said a recent headline in the Wall Street Journal. As you may have noticed, inventory management has been a real obstacle course throughout this health crisis. Between too much and too little, the line is infinitesimal. As proof, when, in March 2020, some industries such as the food industry were looking for pasta packets in several regions of the world, textile retailers were only asking for one thing: sell their collections.

Supply chain management has always been a key issue for companies. As an important strategic lever, inventories are  rarely an ignored line item on the balance sheet. The task has become even more complicated with globalization and especially the division of the chain in different regions of the world. For example, each iPhone travels 804,672 kilometers during its manufacture. A distance that is equivalent to 20 times around Earth. The challenge is therefore important because, if one element is missing then everything is stopped.

Forecasting errors, statistical flaws, or systemic shocks of all kinds, the reasons given by companies are multiple. But what if we are not looking in the right direction? To understand the true origin of these imbalances, we must reconsider the system as a whole.

This article shares a new way of looking at the world; one offered by systemic thinking

An unbalanced world

In all good business courses, inventory management is discussed. Shortages are presented as an economic disaster and, conversely, full warehouses as a serious strategic mistake. 

When the first lockdown was announced, French supermarkets saw their shelves emptied in a flash. We have heard everything about the triggering effects: panic, lack of vigilance, communication defects… This “type of behavior, totally irrational, can be a source of shortage since it disrupts the supply process“, explains the Auchan spokesman. So that’s our “bête noire”: a lack of rationality.

Same cause but different effects for the clothing sector which finds itself a year later with its 2020 collections on hangers. Retailers are in a bind; stuck between the need to follow the trends and newness of a fashion industry that doesn’t stop, and a buyer who abandons his shoes for his slippers. In the end, do we really need a new sweater? In 2018, 17 million tons of textile waste ended up in landfills, according to data from the Environmental Protection Agency.

Restaurant professionals, meanwhile, have had to find solutions to keep their wine from turning sour. It is therefore a matter of being strategic; some prefer to close their doors, others move to the takeaway: new model, new menu and more unpredictability. Again this year, container shortages, winter weather, factory fires, a container ship blocking the Suez Canal have already led to the current global shortage of semiconductors, and now this month we see the disruption of plastic materials.  

                       

In reality, these events are just the tip of the iceberg, with very little discussion about the true origins of the problem. We may not be aware of it, but these stock imbalances are all linked by much deeper elements. So let’s try to look beyond the tree that hides the forest. 

The right approach: adopting systems thinking 

The so-called systemic trend of thought, which appeared slowly in the 1930s, takes into account the complexity of the world around us and develops new systems of representation. Among them: “system dynamics” invented by Jay Forrester, an American engineer. The objective is to identify the deep causes of an event by avoiding the reductionist thinking of the analytical approach.

So what if we asked ourselves the right questions? Let’s take the example of the 2020 shortages in the world’s supermarkets and go through the four of the major steps of this model to investigate: 

  • The first step is to gather all the elements we know that could be relevant to the identified event. What happened? For example, where did the stock run out? What was the profile of the buyers? What products were affected?  
  • Then it is necessary to observe the major trends that drive the system in which the event is taking place. How are things evolving? Are people here cooking more or are they using out-of-home catering? Is the trend toward Asian noodles or American fast food? 
  • Then look at the structures of the system: What governs this system? How do the elements evolve together? The challenge here is to identify the connections and how they work. Do we prefer abundance or quality in supermarkets? Essential foods or diversity?  
  • Finally, one of the most influential points in our society: mental models. What are the beliefs? Values and principles? For example, is sharing an essential value? What is the place of solidarity and cooperation? 

Here is a sample of the first good questions to ask yourself in the context of systems thinking. Try it out and you will see that the answers you provide will help identify the “root” problem.

With this approach, the very notion of “inventory”, which consists of anticipating an imbalance in flows, is challenged. The reflection will therefore go beyond the figures: quantity, deadlines, costs, however accurate they may be. This is the key to wiping the slate clean and making room for major innovations based on the extraordinary capacity of systems to maintain their equilibrium through regulatory phenomena. 

Inconsistency and lack of measurement: significant symptoms

When we approach inventory issues with this thinking, we identify tensions inherent to the very functioning of our globalized system.

First, the complexity of our system is reflected in the complexity of supply chains: ever longer, further and multi-tier. The logistics involved in these chains are impressive. What if we remove a mid-tier? More and more companies are promoting their local anchorage and shortening their supply chain. This is the case of Dollar Shave Club, who sells its razors directly to individuals through subscriptions, bypassing traditional distribution networks. 

Information is circulating faster and further, yet identifying and sharing information with suppliers remains a challenge. Scandals such as Rana Plaza, deforestation in Malaysia and Indonesia or even more recently the Uighurs, illustrate the lack of transparency that reigns in the chains, and the lack of interest that is shown before the scandal breaks. The issue is crucial because the reactivity and coherence of all the actors depend on it.

What if we facilitated information sharing? According to the Sustainable Procurement Barometer developed by HEC/Ecovadis, 72% of companies considered it central to make CSR investments in their supplier relationship management. Major companies such as Patagonia, VF Corporation and Mark&Spencer have committed to disclose information about their supply chain, right down to raw material suppliers.

The overreaction to stock up on food, the race to renew collections while the shelves are full of clothes, or the scourge of food waste illustrate a trend that is too much present in our societies and yet has become commonplace: our hyper consumption and its constant need for abundance. We are overwhelmed with goods and yet we keep buying new ones. 

Too much is too much, our planet tells us so and our bodies too. What if we focused on the essentials?Above all we understood we went way too far. Our reckless actions have burned the house we live in” wrote the creative director of the prestigious fashion house Gucci, Alessandro Michele, in his lockdown diary. More than 500 actors in the fashion world have published an open letter in which they declare they want to improve the sustainability of their supply chain. On the agenda: adjusting the seasonality and flow of fashion items, and producing less unnecessary products. 

As David K. Hurst’s so aptly puts it, a crisis transforms organizations from a stable “performance mode” into a more flexible “learning mode”.

So, let’s make this period useful, at least for reflection.