What is your best inventory strategy for turbocharger product under pandemic?

Following our newsletter dated on 12^th Jan, long lasting pandemic has lasted for more than two years with us. The complicity and changeable pandemic has brought in great challenges on our supply chain management. Turbocharger as a kind of industrial products, it has formed market structure that international major Turbocharger brands such as ABB, Man, MET, Holset, Garrett, have dominated supply for leading engine marker market, Meanwhile, turbocharger replacement factory has scatter distributed in Chinese market .

Chart 1: global supply chain of turbocharger

For turbocharger business, the most critical thing of operation is to maintain optimal inventory quantity in order to meet with local market demand on repair. In nowadays, if we expect business operation successfully, we need to try our best to reach sales targets, increase profitability and meet customer expectations. In this case, we shall learn dynamic inventory precisely and rapidly, in order to optimize the inventory to meet with market demand. When a company develops strategy for product inventory, it shall focus on creating value for customers. Inventory strategies and capabilities shall be orient on lowering company's operating costs, operation efficiency, maintain best product inventory levels which can provide a company with healthy cash flow and reduce operational risk.

How to choose a best inventory strategy? It largely depends on procurement strategy choice, that is, the push or pull procurement strategy.

  Chart 2: push and pull of supply chain models

Affected by the COVID-19, supply chain of product including turbocharger has broken, for example, KBB factory in Germany is mostly very long delivery time due to suffering pandemic crisis, most of turbocharger factory’s shaft have increased in price due to shortage of raw material. Company need formulate a new inventory scheme according to changeable supply and demand situation. It enables company to respond to the unpredictable market environment under impact by pandemic with maximum flexibility and speed, diversifying and elasticizing its supply, and thus managing potential risks to shorten the gap between supply and demand. Managing optimal inventory shall balance between products supply ratio and products in stock capacity. Moreover, it also shall balance between supply capacity and cost. Through decides an inventory level that is compatible with the business operation, and keep turnover of inventory is controlled within a satisfactory level.

Chart 3：Trends in supply chains under covid-19

Each supplier and supply chain consists of a multitude of stakeholders, and there are many difficulties in achieving inventory optimization due to issues such as conflicts of interest and information asymmetry. The inherent risks in inventory management are mainly in demand forecasting, transportation and storage, purchases, financial risks, etc. These inherent risks may also be affected by the risk of external circumstances such as the economic downturn caused by the pandemic has led to stagnation in production and sales.

There are great impact of the pandemic, there is changing on new demand and supply chain status. According to different cycles of the pandemic, the inventory plan needs to be adjusted appropriately to meet the needs of the pandemic and changes in the supply chain. During the peak of pandemic, production stop, shortage of workers, travel restrictions and limited supply of raw materials resulted in limited production capacity in market. Most business is struggling in shrinkage of demand and short of supply. Economic order batch control is to minimize the total inventory cost per unit time by controlling the order batch. Thereinto, total Inventory Cost = purchase Cost + Inventory Storage Fee + transportation cost. This method is more applicable to the stable period of the pandemic when the demand for commodities is balanced and stable, the demand per unit time is a fixed constant, the price is fixed, and the purchase cost per unit time is fixed. This method gives full play to the role of economic batch, which can reduce inventory costs, save costs and improve economic benefits. Generally speaking, the goal of optimal inventory efficiency can usually be measured by the three scenarios of inventory service level, cost and inventory turnover.