The Ugly Truth About Financial Logistics for Inventory Management

It will come as no surprise to anyone in supply chain finance that inventory management can be a manufacturer’s biggest headache.

The modern outsourced supply chain gets the job done, but the field is still in its infancy. Across inventory management, distribution of goods, and financial reporting, there are plenty of sources of error for which Original Equipment Manufacturers (OEMs) seeking outsourced efficiency need to watch out.

Unfortunately, even with a structured plan and a keen eye for logistic details, inventory management in the typical outsourced supply chain is hard to grasp. This is the ugly truth about a manufacturer’s financial logistics: Unless there’s an efficient and transparent inventory management process in place, business owners will never achieve true efficiency in their supply chains, no matter how hard they optimize.

The Ugly Side of Supply Chain Economics

The paradox of modern supply chains is that they embrace “lean” philosophies alongside outsourced operations. Cost-cutting processes, such as just-in-time delivery and minimum inventory, are juxtaposed against the increased tiers of complexity that come with an outsourced infrastructure. This puts C-suite executives (who have the onerous task of managing their businesses’ supply chains) in a predicament.

To complicate things further, inventory management itself is a challenge for most manufacturers. Inventory level is a key factor that supply chain efficiency hinges upon, but changes in inventory are hard to predict. This equates to tied up capital and reduced cash flow to other essential business areas.

And inventory aside, the true costs of the modern supply chain are difficult to track. It’s not unheard of for substantial logistical costs to get lost in the cracks. Here are some common sources of error:

  • Hiring and managing personnel, such as transportation providers or export brokers, for international shipping
  • Creating multiple, redundant IT and human systems that link to providers but don’t synch up across the whole supply chain
  • Providing warehousing in origin and destination countries to store and consolidate goods
  • Maintaining accounting, compliance, finance, logistics and transportation personnel
  • Inadequate duty and duty drawback management processes
  • Carrying costs of inventory for extended periods of time

These contribute to balance sheets full of errors, unreported costs, and general inefficiency. Each of these miscalculations exposes an organization to financial and compliance risk. Naturally, those who manage their supply chains may be hungry for solutions that free them of these inaccuracies.

A Light in the Dark: Inventory On Demand

Executives seeking advanced supply chain finance solutions, look no further than Inventory On Demand (IOD).

IOD is a different approach to inventory management, which changes the way goods are handled. Rather than coordinating a complex supply chain comprised of multiple providers across diverse geographic regions, IOD involves transferring ownership of goods to a single provider who takes ownership of them until they arrive at the customer’s door.

Broadly, IOD service providers examine the entire supply chain and determine the optimal way to provide continuous product availability to consumers, regardless of demand. This is done by leveraging several key concepts that form the foundation of IOD:

  • End-to-End Control: IOD providers manage the supply chain from the factory dock to the point of consumption. Leaving control of the supply chain in the hands of suppliers means that there is no set standard for efficiency or quality throughout the shipping and distribution process. IOD allows for unity throughout the supply chain and guarantees that all steps are managed to the OEM’s standards of quality.
  • In-Transit Goods: Traditional financial logistics don’t consider in-transit goods as a store of inventory, but this is the type of shortsighted perspective that allows the ugly side of financial logistics to rear its head. Leveraging in-transit goods as flexible inventory allows for easier product fulfillment through regional distribution centers, reduces buffered inventory, and improves the customer experience all at once.
  • Third-Party Management: As we know, transportation and distribution are two of the riskiest periods in the typical supply chain. Supply chain executives rightfully seek out ways to meet their performance goals while reducing their assets under management during these periods, which is one of the strengths of IOD service. IOD providers assume the responsibility of goods during transportation, decreasing risk for executives while guaranteeing higher standards of quality.

The Truth About Your Supply Chain

The sad truth of supply chain logistics is that it’s nearly impossible to manage to a high degree of accuracy unless inventory can be effectively delivered across each stage of the supply chain.

Many of the challenges of managing financial logistics is the lack of visibility inherent to fragmented supply chains. Yes, by outsourcing their transportation, OEMs gain valuable channels for increasing their service capabilities, but they sacrifice much for that privilege. Dis-aggregated supply chains result in high cost integrators, inconsistent quality, and a lack of visibility that makes logistic tracking an ugly business indeed.

To get the most out of their supply chains, OEMs need to embrace outsourced supply chain models that allow granular control over each step of the product lifecycle. It’s only when each leg of the supply chain is optimized that manufacturers will understand where their costs are coming from, how they can improve, and what steps they need to take to gain competitive and cash advantages in the global marketplace.

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