For cross-border e-commerce, inventory issues have always been a pain point. Backlogs or insufficient inventory always hinder the healthy development of corporate business. For small and medium-sized sellers, the pressure is even greater. Inventory backlogs will lead to poor capital operation, and insufficient inventory will cause inefficiency.
(I) Turnover Inventory
In-transit inventory, work-in-progress inventory and purchased raw materials constitute the goods within a certain replenishment cycle. They are the inventory necessary to maintain normal operation and are called “turnover inventory”. From suppliers to the sales channels of cross-border e-commerce companies, a certain amount of inventory is required to maintain normal operations. For example: if the production cycle of a product is 4 weeks, it means that there are 4 weeks of process inventory on the production line; if the transportation process is 2 weeks, there will be 2 weeks of in-transit inventory.
The root cause of turnover inventory is the turnover cycle. Only by shortening the turnover cycle can the turnover inventory be fundamentally reduced. Standardized product design, interactive optimization of product and process design, lean production and other measures are all aimed at shortening the turnover cycle and thus reducing turnover inventory.
(II) Safety Stock
The inventory required to deal with uncertainties (demand fluctuations, replenishment delays, quality issues, etc.) is called “safety stock”. Safety stock is the supply chain’s natural response to uncertainties, and its root cause is uncertainty. Only by reducing uncertainties can safety stock be fundamentally reduced.
The standardized design of products increases scale benefits and reduces the instability of demand and supply; improves the supplier’s on-time delivery rate and reduces the uncertainty on the supply side; shortens the turnover cycle and reduces uncertainty. All of these objectively reduce safety stock.
(III) Excess Inventory
The inventory that neither supports normal operation nor responds to uncertainties is called “excess inventory”. Obsolete inventory caused by order cancellations, design changes, forecast failures, etc., and inventory caused by bulk purchases, batch production, strategic procurement, etc. are all excess inventory.
The root cause of excess inventory is human behavior, such as product selection forecast failures, design changes, and bulk purchases to obtain price discounts. Therefore, controlling excess inventory must start from organizational behavior. Promoting information sharing in the supply chain, promoting collaborative planning, forecasting and replenishment, and improving decision-making are all effective measures to prevent excess inventory.