For most consumer packaged goods (CPG) manufacturers, inventory management is a game of reactive manufacturing planning and replenishment. They see demand in the market increase, and raise production in response. An item sells out, and they produce more to stock brick-and-mortar stores and online fulfillment centers. Many are resigned to continue operating in this reactive model despite challenges in trying to gauge and meet fluctuating demand.
More often than not, a reactive model creates supply and demand imbalances, which can go a number of ways.
- An item may have been popular, but by the time a company is ready to restock, people may have already moved on to the next big thing. Businesses end up with excess channel inventory, which results in expensive carrying costs.
- There also comes the problem of what to do with the excess inventory. Do we sell them at significant markdowns? Do we move them to overstock stores, outlets or other secondary channels?
- A company may under-project demand and not manufacture enough products. They then have to scramble to deliver adequate replenishment, while unhappy customers deal with out-of-stock items, invariably leading to lost sales.
The reason companies have to stick with a reactive model is the disconnect that exists between their upstream and downstream supply chains. After all, most are dealing with a complicated, widespread network involving disparate suppliers, manufacturing plants, distribution centers, and retail channel partners — each using their own processes and systems for managing transactions and the movement of goods. The resulting data silos mean manufacturers can’t get visibility into consumer-level demand ahead of time, so they can’t proactively plan production levels further upstream in the supply chain.
Now, an alternative approach is available — one that connects disparate parties with a unified, immutable record of all transactions across the value chain. It is a radical, new solution currently disrupting numerous industry circles: Blockchain.
A primer on Blockchain technology
Blockchain was developed in 2009 by Bitcoin inventor Satoshi Nakamoto. His idea was to create a public, digital ledger for tracking the exchange of Bitcoins. All transactions are saved in cryptographic “blocks”—which is how the technology gets its name. Every transaction is visible to all parties within the network, and no one can alter a record without obtaining approval from others within the network. This level of transparency drives trust, accountability and collaboration among everyone connected through the Blockchain. Further, the data is available in real time, which helps when making critical business decisions — hence its growing popularity in different industries.
For example, in entertainment, a movie studio can use Blockchain to monitor the distribution and rights over owned content. They can track and manage all licensing deals and sales data, ensuring the legal use of content and prevent piracy. In healthcare, Blockchain enables the proper storage and exchange of medical records. Rather than putting patient information at risk for loss or fraud in siloed databases or physical filing cabinets, Blockchain can digitize and store patient data in a centralized network that only authorized healthcare providers can access, which improves trust and security.
Blockchain for proactive inventory management
How can Blockchain address the challenges of a fragmented supply chain and optimize inventory management? By design, Blockchain enables CPG brands and manufacturers to connect each party in their value chain — from suppliers and production sites, to distribution centers and retail partners — with a holistic and permanent record of every, single transaction that takes place. These records are stored and accessible to everyone within the network. This level of transparency and permanency can be helpful for manufacturers that have to manage product origins, traceability, potential recalls and even perishable goods that have a limited shelf life.
The lynchpin to a Blockchain solution is the fact that the data flows seamlessly between parties in real time. Manufacturers can thereby gain instant visibility into consumer-level demand — something they could not achieve before. As a result, they can more accurately forecast demand and proactively plan for manufacturing and replenishment, rather than simply react to stockouts. This ensures that they always have the right types of product and amount of stock to meet demand, with limited excess. It is in this sweet spot that they can optimize revenue and profitability, while eliminating the potential for lost sales and carrying costs.
According to the 2018 MHI Annual Industry Report, Blockchain adoption in the supply chain industry only sits at five percent, but is projected to grow to 54 percent over the next five years. The projected adoption is understandable, as Blockchain presents a way for manufacturers to proactively manage inventory and drive business growth with complete transparency and real-time data flow from source to shelf. The companies that choose to tap in now, will be ready to reap the benefits sooner rather than later.
Pratik Soni is co-founder and CEO of Omnichain Solutions.
