Managing Inventory Shortages - From Toilet Paper to Grape-Nuts to ???

    

Shortages continue to be an ongoing story of this pandemic. Even Post's Grape-Nuts made news for their out-of-stock issues. What started as toilet paper, water, disinfectant wipes, coin shortage, aluminum shortage, found its way to Grape-Nuts, and computer chips. But these are the headlines. Underneath there are several companies dealing with supply shortages.

Skyrocketing demand, changing trade policies, and fragile single-source supply chains have contributed to these shortages (Video). Furthermore, they won't be resolved through sourcing or production improvements. Grape-Nuts brand manager, Kristin DeRock, comments echo a larger issue that many face.

"Grape-Nuts is made using a proprietary technology and a production process that isn't easily replicated, which has made it more difficult to shift production to meet demand during this time." email from DeRock to CBS Moneywatch.

Sled cereal
Demand shifts remain a significant challenge. In the case of cereal, sales declined 1-2% for years but then surged 20%.  Ramping up production to cover the current need while securing "proprietary technology and production process" not only takes time but is a risky investment given the future demand is unknown. Several companies find themselves in similar positions. Supply-side fixes cannot resolve the issue. Shortages are here to stay as well as their consequences.

As a result, CPG companies are placing more inventory on allocation. But this is often supported by rudimentary systems, manual processes, and poor communication. Before, there was little need to invest in allocation or available-to-promise (ATP); now, inadequate supply manifests into escalating On-Time, In-Full (OTIF) penalties. 

Improving ATP and allocation starts with predicting demand based on forward-looking consumer-based insights (Video). But those predictions must be actionized and communicated across the organization to prioritize strategic partners' orders while balancing business goals. Improvements in these processes can yield over $5 million annually through reduction in OTIF fines and time spent on customer service, DC, planning, and personnel administrative tasks. As such, companies are rapidly modernizing these processes and solutions to not only manage the current situation, but to develop agility to manage future fluctuations.