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Hostage by Hanjin: How to Keep Inventory Moving When Supply Stops

September 9, 2016 / 3 minute read / By Michele Salerno

By Ian Goldman | CEO, Celerant Technology

The collapse of Hanjin Shipping, the seventh largest freight carrier in the world, has left $14 billion worth of cargo in limbo. Much of that is literally floating around in the ocean, unable to dock; the rest is sitting idle in ports waiting to be unloaded. For Samsung, that means $38 million worth of electronics and appliances are held hostage in the carrier-bankruptcy case. And HP has 500 containers filled with computers waiting to reach American soil.

While supply chain problems like this will ultimately be ironed out by manufacturers, creditors, and the court system, retailers (of all sizes) are the ones who stand to lose if they don’t have inventory to sell. U.S. courts are expected to grant Hanjin bankruptcy protection, which will keep creditors from being able to seize its cargo — but that doesn’t mean Hanjin will be able to round up the necessary funds to get containers unloaded from its ships. That would severely impact retail supply chains in the U.S. and around the world. Retailers that aren’t directly affected by Hanjin should still take note because slowing global demand and a capacity glut are eating carrier profits — others could face the same fate as Hanjin.

The real danger of supply uncertainty

As retailers prepare for the holiday shopping season, the financial solvency of global cargo carriers is only one factor beyond their control that can impact supply availability. Weather events, geopolitical instability, labor issues, and a myriad of other unforeseen events can unexpectedly reduce the availability of any item — or even stop it altogether. That is cause for concern to retailers that remember the chaos surrounding shortages of products like: Cabbage Patch Kids, Tickle Me Elmo and PlayStation 3.

The inability of suppliers to meet demand is only one half of the equation. The other is forecasting that demand accurately. The omnichannel environment has made developing accurate forecasts even trickier because macro-demand must be stratified between channel partners, e-commerce, and brick-and-mortar to plan inventory distribution. Knowing where and when consumers will ultimately convert as they enter and exit the shopping journey is a formidable task — but retailers who get it wrong are punished swiftly as shoppers take their business to competitors.

Take control by optimizing fulfillment

The inability to accurately forecast demand on every discrete channel leads to inefficiencies in inventory management. That becomes even more wasteful during supply shortages when out-of-stocks become common problems. An excellent way to combat demand uncertainty is through fulfillment optimization. This is achieved when digital orders are routed to the distribution center best equipped to fulfill them through a fulfillment logic algorithm. By selecting from the best fulfillment center, retailers can react quickly to peaks and valleys in demand at any individual location or channel.

Automated fulfillment logic is an important best practice for any omnichannel retailer to employ during typical operations and it is often customized to account for different preferences among geographies or expected seasonal demand shifts. When supply emergencies erupt, like missed shipments caused by a bankrupt cargo carrier, the algorithm can be tweaked in a number of ways to minimize out-of-stocks. If the shortage is small or temporary, assigning fulfillment priority by order volume is a way to react to demand changes in real-time. During a severe shortage where out-of-stocks will be unavoidable, allocation limits can be set to distribute inventory to the most vital locations and customers….

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