The Effects of COVID-19 on Inventory Management

business owner in a call

Inventory management is the process of acquiring, storing, and consuming a company’s inventory. This process includes the operation of raw materials, components, and finished products. The warehousing and processing of such items are also included.

How does inventory management work?

A company’s inventory is precious to its business. In many inventory-intensive industries, finished or completed products are what matters. A shortage of inventory during times of need can severely delay a company’s growth.

While being a company’s valuable asset, inventory can also be considered a liability. For example, a large inventory has a risk of spoilage, theft, damage, or shifts in consumer demand. A company’s way of securing that their inventory will not be a financial detriment when the undesirable happens is through inventory insurance. If not, companies push to have their inventories sold or disposed of in time. They can also opt to have the inventory destroyed.

How do companies do inventory management?

Companies should understand when to restock their inventory, the amount to purchase and produce, and what price range can be intricate decisions that come with business management. In small businesses, they can monitor their inventory and determine when to reorder and in what quantities using spreadsheet formulas. The ease they have in inventory management is attributed to their business’s size–it is much easier to keep track of small quantities that do not vary much.

Large businesses, on the other hand, use specialized software for inventory management and enterprise resource planning. This software integrates all processes needed to run businesses into a single system. Multinational corporations use highly customized software as a service application, whose management is outsourced instead of operated in-house. These applications are usually opted for on a subscription basis and accessed by companies through web browsers using multiple company credentials.

How is the pandemic affecting inventory management?

For restaurants or any business operating in food service, the halt in operations affected their perishable goods’ inventory. Perishable goods are products whose quality deteriorates due to natural conditions and through time. This includes meat and meat by-products, fish and other seafood, dairy products, fruit and vegetables, flowers, pharmaceutical products, and chemicals.

The characteristics of perishable goods stored by businesses that use them give the goods a short life span. They are susceptible to severe damage during transport and storage–especially when the temperature is not consistent. Perishable goods must be handled with caution and efficiency to maximize their short life span to reach the final consumer in excellent condition.

warehouse factory

However, the unexpected halt in restaurants and other foodservice establishments led to a waste of inventory. As the days with zero activity fly by, businesses, especially the small ones–are losing their perishable goods inventory to time and environmental conditions.

Given these foodservice establishments have non-perishable goods or goods with long shelf life and do not need refrigeration, they cannot eliminate the need for the perishable ones. For manufacturers outside the foodservice industry, factories shutting down for months due to the pandemic led to slow inventory rotation. In the automotive industry, for example, the production of new vehicles halted. This reduced the supply of new vehicles purchased by dealerships to be sold to the final customers.

Final customers will experience this if they are looking to purchase a new vehicle amid the pandemic. Dealerships are operating with lower supply levels, shrinking the customers’ choices. Car dealerships, however, are under less pressure to update their inventory due to the lack of activity in the automotive manufacturing sector.

For people in the car dealership industry, the fewer choices for the small number of potential buyers they get during the pandemic have led to a cut in purchase incentives. For buyers, they are left with a small selection of vehicles to choose from with little chances of securing zero percent financing or cash rebates.

How will companies revive their inventories post-pandemic?

The post-pandemic recovery shall start with getting a grip on the current demand. As the demand for final products from the foodservice industry did not decrease, it is fairly easy to revive an inventory to work with the pre-pandemic operations. For the automotive industry, the same thing should happen by getting insight into current consumer demand. However, as vehicles are not as needed to live like food, recovery will be much slower than the former industry discussed.

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