Tackling inventory waste: Strategies to combat lead times, shortages and constraints

Real-world challenges

Consider the following scenarios that highlight the impact of inventory waste:

• Excessive capital is tied up in safety stock and overstaffing, limiting a manufacturer’s ability to invest in product innovation and seize new market opportunities.
• An economic shift triggers a sudden spike in demand, yet a leading manufacturer is faced with inventory they produced and stored in a distant country. Relocating it requires expensive expedited shipping, as-well-as unexpected tariffs and regulatory fees, and potential in-transit delays, costs and disruptions. 
• Rising inflation or interest rates directly impact customers’ ability to purchase goods, as-well-as the manufacturer or distributor’s cost of moving and storing those goods. If the manufacturer or distributor later has excess inventory and faces a decreasing willingness for customers to purchase goods or rising transportation and storage costs, they are left with a higher overall cost of goods sold (COGS) that may exceed the actual value they receive for the product. 
• Regulatory or consumer changes force customers to embrace new specifications or configurations for their product, causing the manufacturer’s inventory on hand to now be obsolete and destined for disposal, wasting inventory, increasing costs, and hurting their sustainability efforts. 
• A related inventory waste known as shadow inventory occurs when held inventory that seems beneficial on paper becomes a financial liability due to changing conditions. This can happen when inventory created and held in one country faces unexpected tariffs when moved to another country or unforeseen demurrage or detention fees are incurred due to new port delays. Both situations are caused by moving extra inventory held in another location and increasing inventory costs through unexpected fees attached to held stock.
• Ghost inventory refers to stock that appears in inventory records but is physically absent or unavailable in the warehouse. While it is the opposite of holding inventory and often the reason for excess inventory, ghost inventory results in inventory related costs for manufacturers and leads to inaccurate stock levels, impacting order fulfillment, customer satisfaction, and financial reporting.  

Balancing safety stock and inventory waste

While safety stock is essential for mitigating lead times and shortages, excessive inventory—whether in raw materials, work-in-progress or finished goods—can lead to high storage costs, inventory damage, and additional fees. Moreover, there is the risk of storing inventory that may become obsolete, necessitating costly disposal. It highlights the importance of accurate inventory tracking and planning, and regular audits to ensure data integrity and operational efficiency.

Strategies for optimizing inventory

To effectively manage inventory waste, manufacturers must have clear visibility into supply and demand dynamics, as-well-as potential and actual disruptions in the global supplier network. This requires the ability to assess the near-term impact of demand shifts and material shortages and delays and adjust production plans and inventory through intelligent, what-if scenario testing and optimization. 

Reducing inventory waste involves strategic approaches:

• Integrating demand and supply planning: Cohesive decision-making is crucial for aligning inventory levels with actual demand and available supply, minimizing waste, and optimizing resources.
• Optimizing inventory: Ensuring the right mix and placement of inventory is vital for maintaining production and service levels without tying up excessive capital in safety stock.
• Global supplier and carrier collaboration: Drives needed transparency into inventory and delays allowing shippers, carriers and manufacturers to accurately plan for material availability and capacity and to anticipate or react to changes and delays in productions or transit, thereby limiting the need for excessive inventory. 
• Ensuring connected operations: By integrating orders, transportation, and warehouse management, manufacturers can respond more swiftly to changes and plan resources more accurately.
• Agentic AI: Inventory focused AI agents leverage advanced analytics and machine learning to optimize inventory levels, improve demand forecasting, and automate replenishment processes by providing real-time insights and recommendations.
   

In conclusion, reducing inventory waste requires a strategic approach that combines visibility and optimization with end-to-end supply chain management. Doing so enables businesses to reduce waste associated with excess stock, minimize stockouts and improve overall inventory turnover. Digging deeper, by addressing the root causes of lead times, shortages, and constraints, manufacturers and distributors can reduce inventory waste and costs, enhance their operational efficiency and better position themselves to capitalize on market opportunities.