Manufacturers balance inventory against economic trends

When COVID-19 began to spread across the globe in early 2020 ports closed and ships stacked up as offshore manufacturers shuttered and loading at the docks came to a sudden halt. As markets reopened in the months that followed, companies began to return to full production. But despite strong consumer demand, manufacturers experienced delays due to shipping problems. Ports were challenged by labor shortages, fewer available ships and even a container shortage, sending freight costs through the roof.

This year, 2023, has seen a much-improved situation, but the aftereffects of the pandemic continue. Even as recently as 2022, outbreaks of COVID-19 variants still spurred sporadic lockdowns in some countries, occasionally still slowing and even temporarily stopping the flow of raw materials and finished goods. In an effort to make up for lost time and sales resulting from uncertain sourcing, most manufacturers increased orders in hopes of catching up. However, now that suppliers are able to ship and deliver, a new issue has arisen—how to deal with increased inventory levels.

As Associated Bank’s Senior Vice President of Commercial Banking Dan Holzhauer explains, “The supply chain backup led companies to build up their inventory with the intent of filling an anticipated backlog of orders. Now all the inventory has come in.” This leaves manufacturers with a triple problem: Not only are they saddled with excess inventory, but the price they paid for it went up—especially in shipping costs—and, due to inflation and other factors, consumer demand has taken a more cautious turn.

However, the preceding years have been good financially; manufacturers are finding that they’ve been able to increase pricing when they needed to and are back to keeping up with demand. The situation has also caused businesses to get back to basics as far as dealing with inventory stocking and management—studying sourcing strategies, seeing inventory as an asset and finding efficiencies in reworking future product planning. “2023 is still a bit uncertain, but working through their inventory and planning accordingly is a good step,” says Holzhauer. “Supply chain issues have mostly resolved. Now that manufacturers are back to having what they need to run their businesses, they can take this opportunity to take a closer look at how their inventory management system flows: from orders, to transit, to billing and, ultimately, to cash flow.”

Connect with us today to learn more at AssociatedBank.com/MMAC