Question

Why is it that managers want to push inventory back to suppliers?

What are the impacts of such move on the supply chain?

Answer 1

Managers in organisations want to push inventory back to suppliers due to the following reasons:

1. One reason could be due to slow-moving and excess inventory that keep happening to retailers / other entities as it is difficult to forecast 100% accurately sales.

2. It will reduce the Material Maintenance and Cost. In fact, having excess inventory within the system takes up rental storage, handling and labour charges.

3. In the perishable goods, storage of product might make the products to go waste. Reduced Waste helps to improve the overall inventory costs.

4. F|lexbilitly in the operations as reduced inventory per product lifecycle helps as the preference and the way customer shops keep changing

5. Overall, it helps to improve the cash flow within the system, as the money will not get stuck with inventory.

Such move can impact the supply chain in the following ways

§ This will create excess inventory at the supplier end affecting them badly through excess various costs like storage, labour etc.

§ There could be a potential loss to the suppliers as the inventory returned from the client might be unanticipated and if this could not be sold to another client might result in heavy loss.

§ Future shipment from the producers will be affected and the products will not be shipped on time due to lack of a proper forecast from customers.

§ Will result in lack of trust among the entities in the supply chain

§ Cash flow will be affected at the supplier’s end, which in turn will impact on their next level suppliers, logistics partners, producers etc. This in turn will have issue with the cash flow cycles and payment cycle as they might seek 100% upfront payment as against a credit period.