Effective Inventory Management, Inc.
Dealing with a Chaotic Supply Chain – Part #3
by Jon and Matt Schreibfeder

Recent articles in business publications report that supply chain disruptions and material shortages will continue for the foreseeable future.  You may face situations where one of the items on your approved stock list is currently not available from your primary vendor or any other source of supply.  Your customers need this type of product and are willing to accept a substitute until the product they really want is once again in stock.  Your buyer searches the internet, as well as any other sources they might think of, and finds an acceptable alternate and brings some of that item into inventory.  However, you don’t want to maintain this “second choice” as a stocked item.  To correctly handle this situation:

  • Add usage (i.e, sales or other disbursements) for the substitute product (or multiple substitute products) to the usage of the product you normally stock. Afterall, this is what your customer really want and what you want to have in inventory.  To accurately forecast future demand, you need to consider total requests for the stocked item.
  • If you do not normally stock the substitute item, be sure it is classified as a non-stock item. You don’t want to bring in more of this item when the normal stocked product once again becomes available.  If the substitute product is also stocked item, its usage should only include quantities actually requested of this specific product.
  • When determining when to replenish the normally stocked item, consider your net available quantity (on-hand – committed + on replenishment order) of the alternate product. You may not want to order a lot of the normal stock item if you have surplus inventory of the alternative item(s).

But what do you do if no substitutes for the stocked item are available?  Best practice is to:

  • Allocate your remaining stock for your best customers. Be sure to let them know that because of their loyalty you are doing your best to address their needs.
  • Limit the amount of the product that can be purchased by a single customer. Be sure that no one tries to hoard your limited supply of the product.
  • Call your vendor and see what they can do to help you obtain some of the needed item. Personal calls are far more effective than emails or texts.  Don’t threaten or complain.  Empathize with their frustrations and stress the fact that you are interested in maintaining a mutually beneficial long-term relationship.  Ask if sharing your projections of future needs of their products can help with their production planning.

There doesn’t seem to be a “quick fix” to the supply chain issues most organizations are facing.  What we need to strive for is being the best possible provider to customers in these challenging times.  If you have specific questions concerning the specific challenges you face, please let us know.