The real cost of shortages & overstocks
This is the increase in the number of days of inventory coverage for manufacturers and retailers between 2004 and 2019. Most companies are not really aware of the cost associated with owning stock. Each year, thousands of billions of dollars are lost: either in shortages or in overstocks by manufacturers and retailers. In 2020, most companies have an ERP and good visibility on their inventories. However mismanagement of stocks and the associated financial losses have never been greater.
Why is it so complicated to know what is the right level of inventory to maintain?
Why hasn’t this problem been resolved yet?
A systemic issue
The problem is complicated because it is systemic: it cannot be solved by considering the company as an entity independent of its suppliers or customers. The best analogy to represent it is traffic jams. The company can be compared to a car and the Supply Chain to a lane of these cars. As soon as a disruption takes place (a red light for example), this amplifies by going up the chain and will cause an bullwhip effect and a traffic jam. The equivalent in the supply chain is that as soon as a promotion sells better than expected, it amplifies while going up the chain, causing more and more sizable inventory shortages.
The traditional way to solve the problem is to make the individual company more efficient, which is like trying to improve the car to solve the traffic jam problem. It doesn’t solve anything. Yet these are the choices that are made today in supply chain management, for example by trying to improve forecasts or by adding stocks everywhere…
This is the main reason why in 2020, companies spend their time oscillating between overstocking and stock shortages.
To solve this problem, it is necessary to have a systemic approach of the supply chain: adapt its speed according to other cars, i.e. synchronize the cars in the lane, or the companies in the chain.
It is based on this understanding that Flowlity was born. We believe that supply chain managers expect above all to have an efficient Supply Chain, without stock shortages and without overstocks. Flowlity can achieve this goal for 3 reasons:
- Flowlity acts as an intelligent trusted third party between one company and its suppliers and customers. It allows everyone to have optimal stock recommendations without the need to direct share sensitive data between that company and their business partners.
- Flowlity is a simple and robust SaaS solution. It replaces unreliable solutions such as Excel files or the stock calculation of an incorrectly configured ERP
- Flowlity uses artificial intelligence in its algorithms. This makes it possible to identify potential issues (shortages or overstocks) in order to make the company more reactive and agile.
Flowlity will thus allow a complete synchronization between a customer and a supplier without the disadvantages of E2E visibility solutions:
- There is no sharing of sensitive data (production plan, order book, inventory levels…) between a company and its business partners
- The recommendation is given in a directly actionable way to the company (safety stock and supply)