A big risk to the economy is the inventory swing. Companies worry about not having enough inventory, so order a lot. As demand softens, they end up with too much and have to cut back and markdown existing stock. This classic inventory cycle impacts inflation and has historically driven recessions.
The inventory swing is now in full swing. Recently, Walmart was caught with 32% more inventory than last year while Target was higher by 43% and Abercrombie & Fitch Co. by 45%. Major retailers can absorb the shock on margins better than small/medium size firms, but getting hit with high inventories and costs at the same time packs a punch. This margin pressure is like the canary in the coal mine. When you see it, it’s a sign of broader trouble.
If you’re evaluating inventory strategy, MOSIMTEC simulation modeling services can help. There are many factors to consider – holding large inventory ties up capital, requires extra space and people to manage it and needs to be insured. It is also a problem for companies selling products with a sell-by date. Holding too little inventory risks getting stuck when demand rises. Explore multiple options/tradeoffs virtually to see what works best for you and your KPIs. MOSIMTEC can help you future-proof your business.
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