With Leaner Inventories, Retailers Must Prepare for Transportation Disruptions 

Research from Morgan Stanley suggests that inventory restocking may face sustained headwinds as companies respond to persistently high interest rates. The report indicates shippers are increasingly reluctant to rebuild inventory, preferring instead to run leaner operations even at the expense of being late on orders. Meanwhile, the enduring drought in the Panama Canal and the escalating conflict in the Red Sea have thrown transit times into chaos — adding upwards of 10 days to journeys from Asia to the East Coast, rising container rates and a shift to more air freight. 

With less inventory in the pipeline, retailers are at greater risk of stock-outs and higher cost due to transportation disruptions. However, having an in-depth understanding of their supply chain, as well as the ability to push allocation decision making as close as possible to the final destination, can help retailers save and make money this spring. 

This is especially true for larger retailers with an extensive distribution and fulfillment footprint. Insight into network capacity, flexibility in routes, transportation modes, and inventory sitting in the yard or warehouse unlocks options to quickly realign supply to demand as needs shift. 

For example, a company like Target utilizes a distributed fulfillment network to ensure it can handle high-velocity replenishment as consumers shop online and in-store, with the expectation of full shelves and fast shipping. For retailers that have moved operations closer to end customers, priority ingress processing and cross-docking will be critical to support timely inventory positioning across sites. However, the risk of stock-outs may still increase if safety stock is kept low, necessitating more frequent warehouse-to-warehouse transfers to satisfy customer orders. This could drive up the number of inventory touches, which means greater risk of product loss or damages while operating with already-lean levels.

Alternatively, order lead times could lengthen if products are out of stock at the most efficient fulfillment location. This underscores the need for inventory planning teams to closely align with warehouse operations — setting appropriate site-level stock targets and coordinating replenishment to balance service-level tradeoffs.

As facilities handle faster inventory turns of fewer products, operations must gear towards flexibility — adapting to faster cadences of receiving, put-away, picking and shipping to keep precision in inventory positioning.

Of course, smaller retailers with fewer facilities will have a harder time pivoting when disruptions occur and safety stock is low. Their only options may be to incur costly expedite fees or else learn lessons that will help them plan better for next time. But for larger companies with more distribution centers, re-routing these goods — even when it requires more touches and therefore more money — might be worth it to meet customer expectations.

Thankfully, supply chain leaders of all sizes aren’t in this alone: technology is already helping them gain accurate understanding of their inventories, timelines and routes, while helping enterprise systems to automatically communicate with each other to help prevent long lines of trucks and other inefficiencies. AI is making things even more interesting, processing vast amounts of data to enable leaders to make intelligent, impactful decisions faster than ever. 

The first months of 2024 have been eventful, with retailers and manufacturers fighting against both economic and political challenges. But as the saying goes, victory lies in preparation. Having a full understanding of their inventories, timelines and routes — as well as being prepared to adjust those levers quickly — will help supply chain leaders boost their likelihood of on-time, in-full deliveries.

Seth Frederickson is vice president of product management at FourKites, a real-time supply chain visibility platform.