newsworthy
The End of Inventory
EVER SINCE THE GREAT RECESSION BLEW OUT TO
sea in late 2009 after nearly leveling the U.S. economy, it’s
been the hope of executives and analysts alike that retailers
would eventually emerge from their storm shelters to begin
a cycle of inventory replenishment that would bolster shipping and economic activity.
Hope continues to spring eternal. However, retailer
inventory levels, which hit their lows on an
absolute basis during the recession as businesses froze ordering and sold from their
existing stocks, are today as lean as ever.
Given improvements in inventory management processes, and advances in forecasting and distribution management
technology, what many initially thought to
be a short-term trend influenced by
macro-economic forces has become a secular phenomenon unaffected by the economic conditions of the moment.
The Institute for Supply Management’s
(ISM) influential monthly Manufacturing
Report on Business said in its February
Index, which measures inventory levels at the retailer level,
came in at 45. That marked the 45th consecutive month of
a reading below 50, an indication inventory levels of finished goods are too low. (The March data, which are published at the start of April, weren’t scheduled to come out
until after DC VELOCITY went to press.)
Bradley J. Holcomb, who chairs the ISM committee that
publishes the report and who recently retired as head of
procurement for Dallas-based food and beverage giant
Dean Foods Co., said the below- 50 readings have persisted
for so long that this may be irreversible. “I just don’t see
anything changing here,” he said.
they said it:
Holcomb added that order leadtimes have shortened to
the point that no one wants to hold inventory for any kind
of prolonged period.
A quarterly survey by Morgan Stanley & Co. of 500 U.S.
and Canadian shippers that forecasts inventory levels six
months out found that about 46 percent of respondents
planned to maintain their current inventory levels
through mid-2013. That percentage has
remained fairly constant for nearly two
years, though it represented a sharp
upward spike from levels seen early in
2012. By contrast, only 17 percent surveyed during last year’s fourth quarter
planned to add inventories, below the 20-
percent level of nearly two years ago and
down from 23 percent in the second quarter of last year. About 37 percent said they
would reduce inventories through midyear, a sharp decline from the forecasts in
the second and third quarters.
“Shippers continue to manage inventories very tightly, with no evidence of any
big restocking in the near future,” William
Greene, the firm’s lead transportation analyst, said in a mid-February analysis accompanying the data.
For many years, the dollar values of retail inventories
were higher than in the wholesale trade, according to
Rosalyn Wilson, a supply chain analyst at Vienna, Va.-based
Delcan Corp. and author of the annual “State of Logistics”
report. That changed around the second quarter in 2008,
she said, and after a period during the recession when both
levels moved in near-lockstep, wholesale inventories have
grown at a faster clip than retail stocks.
At the end of 2012, U.S. wholesalers held $597.6 billion
in inventory, while retailers held $522 billion, said Wilson.
In all, the value of inventory at year’s
end stood at $2.3 trillion, which
included about $710 billion in stock
held by manufacturers. Wholesale
inventories are at their highest levels
since before the financial crisis and
subsequent recession, she said.
Wilson said the data indicate that
retailers are becoming more adept at
pushing inventory back upstream
through the supply chain, p. 18
“Equipment has become the new diesel.”
—Bob Costello, chief economist of the American Trucking Associations, on
the rising cost of truck equipment and the increasing importance of equipment in a carrier’s overall cost structure
