Supply chain players to cut back on stocks

In a sign that the supply chain remains cautious about consumer activity heading into the traditional "peak" pre-holiday season, a survey of nearly 100 top manufacturers, retailers, and wholesalers found the respondents plan to hold fewer stock-keeping units (SKUs) in inventory during the 2011 peak season than they did a year ago.

According to the survey from supply chain consultancy Tompkins Associates, 34.8 percent of the respondents said they plan to hold a smaller number of SKUs this peak season than last. About 32.6 percent said they would either carry more SKUs or hold to about the same levels compared with 2010, the survey said.

In addition, 41.7 percent of the respondents said they would be holding less inventory this peak season. About 31.3 percent said they plan to add inventory, while 27.1 percent said they expect to hold about the same level of stock.

The respondents were polled both through Internet voting and in person at a recent conference in Orlando sponsored by Tompkins. They represent a broad swath of industries and are responsible, in aggregate, for billions of dollars of procurement and transportation spending. Retailers and manufacturers accounted for about 73 percent of the respondents, while wholesalers and distributors represented the remainder.

Chris K. Ferrell, a Tompkins analyst who developed the survey, said he was "shocked" by the data showing a contraction in SKU levels. "I've been involved in the supply chain for 20 years, and in all that time, SKUs have done nothing but go up and up," he said.

The Tompkins data underscores the wariness among supply chain participants of a muted peak season as anxious consumers buffeted by myriad negative headlines hold tight to their pocketbooks. In turn, retailers and manufacturers have held a tight rein on inventory and order activity.

Perhaps not surprisingly, the respondents cited "forecast accuracy" and "vendor capacity and reliability" as two of the top three impediments to meeting or exceeding peak season profitability expectations. Ferrell explained that in an environment of sluggish economic growth and tight inventory controls, forecast precision and vendor fulfillment capabilities and performance are even more critical to avoiding unexpected stock-outs. The weak economy and low consumer confidence were cited as the most serious obstacle to meeting peak season goals.

Bradley J. Holcomb, who chairs the committee that publishes the Institute for Supply Management's influential monthly report on manufacturing, told DC Velocity last week that manufacturers have adopted a "wait and see" attitude toward inventories as retailers remain extremely cautious about consumer spending in the holiday season.

Holcomb said manufacturers have shown "great discipline" in synchronizing their supplier inventories to end demand for their products. Manufacturers are in "excellent control" of their inventory levels, a feat made even more impressive by the unusually prolonged nature of the sub-par economic recovery and its impact on traditional ordering activity, he said.

The Tompkins survey is its third annual, but the first to poll participants' attitudes ahead of a peak season period rather than after the fact. Ferrell said this was the first such study he had worked on.