Christopher Cauley, Head of Inventory Management Sales at Taulia Inc, provides an overview of the innovative options available to companies looking to solve the inventory conundrum.


The Covid-19 pandemic has shone a light on just how severe supply chain disruptions can be. Indeed, research by Accenture found that 94% of Fortune 1000 companies were seeing supply chain disruptions from the pandemic, with three quarters experiencing negative or strongly negative impacts on their businesses.

But while there’s no denying that Covid-19 has resulted in major disruptions to the flow of goods around the world, it is not the only crisis to threaten supply chain stability over the last year. Other issues such as shipping issues, port blockages, and geopolitical tensions can all hinder trade – from the Suez Canal blockage to the global semiconductor shortage, there are many recent examples of how unexpected issues can wreak havoc with supply chains and prevent goods from getting to the right place at the right time.

That said, not all supply chain disruptions are headline-grabbing global events. In practice, supply chains can be affected by a wide range of issues, such as key suppliers going out of business, natural disasters, unexpected surges in demand, staff strikes, and customer boycotts. All of these scenarios can make it difficult for companies to obtain essential goods and raw materials – and this, in turn, can impede their ability to operate and serve their customers.

Taking stock

Against this backdrop, it should be no surprise that companies are looking closely at how they can protect their businesses from the impact of supply chain disruption and are re-evaluating their existing processes to address these challenges. For some companies, that might mean bringing sourcing and manufacturing back onshore. For others, it might mean looking for ways to insulate the business from future supply chain shocks.

The impact of supply chain disruption is all the greater for companies that operate on a just-in-time (JIT) basis. Famously pioneered by Toyota in the 1960s, JIT or lean manufacturing has become the strategy of choice for numerous businesses around the world, as it allows them to avoid holding stock and instead receive deliveries of goods and materials when they are actually needed. In some cases, this means receiving goods from suppliers on an hourly basis.

The benefits of a JIT approach are clear: by paring back inventory to the lowest level possible, companies can minimise the costs associated with storage, eliminate waste, maximise efficiency and limit the amount of cash tied up in working capital. However, while this approach can be highly effective when the company is confident that deliveries will arrive on time, it also comes with considerable risks if the flow of goods is suddenly interrupted. Without any supply buffer to fall back on, an unexpected supply chain disruption can rapidly hinder the company’s ability to produce its own goods – a reality that Toyota itself faced in 1997 when a supplier’s factory caught fire, costing the firm around ¥160bn in lost revenues.

While the risk of lost sales is an important consideration, companies also need to address other challenges when it comes to managing inventory effectively. For one thing, it can be difficult to balance the Minimum Order Quantities (MOQs) needed to secure optimal pricing with the goal of keeping stock levels to a minimum for JIT operations. In addition, long lead times on in-transit goods can make it difficult to manage future inventory requirements against forecast demand.

Balancing competing goals

In the current environment, some companies are beginning to move away from a just-in-time approach and are taking steps to transform and de-risk their supply chains. One option is for companies to build in some buffer stock or safety stock – in other words, an additional layer of inventory that can provide a safety net in the event of supply chain disruptions or stock-outs. However, this approach brings additional storage costs, as well as tying up working capital that might otherwise be used for other business purposes, such as funding M&A or carrying out a share repurchase.

Alternatively, companies may ask their suppliers to hold onto inventory in a location close to the buyer’s premises in order to ensure that JIT delivery can proceed without interruption. Some suppliers are willing and able to support this approach, although the cost of keeping inventory on the balance sheet will inevitably be baked into their pricing structure. But in other cases, suppliers may not have the resources needed to facilitate this type of arrangement – and to be successful, any new inventory management strategy needs to meet the needs of suppliers as well as the buyer.

Competing priorities are not only an issue in the context of the buyer-supplier relationship. For buyers, challenges may also occur when attempting to reconcile the objectives and key performance indicators (KPIs) of different functions within the business. Where inventory is concerned, Finance, Sourcing, and Production teams will all have different, and even competing, goals:

  • For Finance teams, the focus is on preserving working capital by promoting lower inventory levels. This means giving Sourcing the minimum budget needed to procure the goods the company needs.
  • Sourcing/Procurement. Sourcing tends to focus not on improving working capital, but on getting the lowest possible price for goods. Often this means purchasing high MOQs so that the company can benefit from economies of scale, or opting for longer lead times.
  • Production/operations. For Production, key goals are likely to include preventing outages, de-risking the supply chain, ensuring demand is met, and obtaining the lowest quantities of goods or materials needed to operate on a just-in-time basis.

As such, when companies seek to improve their supply chain and inventory processes, there is an important balance to strike between these different goals.

Solving the inventory conundrum

It’s no surprise that many companies are seeking new solutions to these complex challenges. One option that buyers may consider is running a Vendor Managed Inventory (VMI) programme. With VMI, suppliers are responsible for managing and maintaining inventory for the buyer, while still retaining ownership of that inventory. This alleviates supply chain risks for the buyer, but taking part in a VMI programme can also present suppliers with certain challenges:

  • Suppliers have to hold inventory on their balance sheets for a longer period of time.
  • Suppliers may not be able to obtain financing based on their inventory once it has left their premises, which may make it difficult or impossible for them to join a VMI programme.
  • The technology integration needed for suppliers to join a VMI programme can be costly and time-consuming.

More recently, innovative new models have been developed that can help companies manage their inventory more effectively while reconciling conflicting goals within the organisation, and without placing a high burden on suppliers or tying up working capital.

Taulia’s Inventory Management solution, for example, bridges the gap between buyer and seller by having Taulia’s solution take ownership of goods-in-transit, and/or at a third-party logistics (3PL) warehouse close to the buyer’s premises. The buyer can then purchase goods from Taulia on a just-in-time basis in line with their needs while avoiding the challenges associated with long lead times.

As such, Taulia’s solution acts as a shock absorber, taking on both the ownership of goods and the associated risk until the buyer is ready to procure goods.

While this may be a new approach in the world of inventory management, it is a model that works very effectively for distributors – and our model also harnesses technology to provide a smooth user experience. What’s more, as well as protecting the interests of both buyers and sellers, our solution provides inventory tracking at every step of the process from origination to destination, providing full transparency over the whereabouts and status of goods. Last but not least, it enables suppliers to take part in their buyers’ VMI programmes without placing additional strain on their balance sheets or embarking on costly VMI integration projects.


While Covid-19 is one of many factors that can disrupt supply chains, there’s no doubt that the events of the last year have made the risks of JIT manufacturing clearer than ever. In today’s environment, companies are looking for new ways to protect themselves from supply chain disruptions – and they are also seeking solutions to other inventory-related challenges, from long lead times to high MOQs. The good news is that by embracing innovation, companies can mitigate the risk of outages, preserve cash, improve working capital and have greater visibility over inventory – and they can achieve this without placing an additional burden on their suppliers.