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Travis Epp on Inventory Planning, the Labor Force and Pandemic Learnings

Travis Epp, an audit partner at EisnerAmper, oversees the manufacturing and distribution group at Eisner Advisory Group. In the business consulting practice, he leads a team that works closely with private middle-market companies to understand what drives their businesses, and how to tailor strategies specific for each firm.

Here, Epp synthesizes some of the key learnings across sectors that can serve as “best practices” for companies as they navigate through the ongoing Covid pandemic.

Sourcing Journal: As we look out at the current landscape, are there any learnings for companies based on how they tried to get product in for the holidays and what they are doing now for spring shipments?

Travis Epp: I think one of the things that people need to do is just go back and fully understand each of the products that they were trying to sell through and make sure they understand the margin and the pricing. As we’ve seen from some of the manufacturers, what they needed to do was to pick and choose what products they [are willing to] manufacture. And [retail] customers have definitely focused on these high-margin items that will sell through as opposed to just trying to generally have everything in stock. I think each of the retailers really need to make sure they continue to focus on what are the products that really derive value for them, and maybe not have everything that they always provided before.

SJ: Are you seeing companies make adjustments to what they did before the pandemic? For example, there’s been talk about reshoring and near-shoring, as well as buying raw inputs to hold and then ship to where they are needed.

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T.E.:  There’s definitely been a lot of discussion on this. And I think it’s not simple to do. We’ve definitely seen customers try and switch foreign suppliers from China to other countries to sort of manage costs like tariffs and also get the inventory. But we haven’t really seen from my perspective a whole lot of reshoring yet. As I look at our customer base, it’s just amazing how you see the raw materials, or even some of the finished goods, seem like they predominantly are coming from foreign suppliers. As somebody said to me, and I think as we see the impact of the whole pandemic, we really have outsourced the manufacturing floor to other countries. And it definitely is alarming I think for us as consumers as to some of those products that are no longer produced here. And I think we need to reshore some of those activities. I know the (federal) government wants to assist with that. I haven’t seen a whole lot to really help the middle market to bring that manufacturing here today.

SJ: How hard has it been for some of the your customers to try to switch suppliers from China to elsewhere? Is it that the other countries don’t have the infrastructure? 

T.E.: I think part of it is that when you’re comfortable with a supplier and it happens to be in China, you know in terrible times what you’re going to get [and] when you’re going to get it. When you try and shift to another supplier in a different country, assuming its a different manufacturer, that means building a different relationship [and] getting to know the supplier who you maybe don’t have a past experience with, which is always a concern. And yes, infrastructure is a challenge as well.

SJ: One of the things that we’re seeing now are spikes with the Covid variants. If there are new port shutdowns or another round of lockdowns, are we any better prepared now than we were before?

T.E.: I think we are better prepared. I don’t think businesses had really given any thought to a pandemic strategy before. So I think, just by having gone through the pandemic, our thinking process would be a little bit different going forward.

As I alluded to earlier, maybe you focus on certain goods which will give you a higher return. And another area where some companies have sort of changed what they’ve done to the best of their ability is to start getting into inventory management systems.

As you know, just-in-time is a very popular method of managing working capital and a lot of manufacturing entities have tried to do that over a number of years. We are aware of a number of our clients who, given the pandemic, have decided that to manage that risk to meet client demand and build inventory to have higher levels on a continuing basis. So, some clients have done that. If they have been able to source the raw materials and the finished goods, some clients are better [having more] inventory [because] that should help them to meet demand if there is a pandemic and the supply chain is impacted. There are costs in building up your inventory because that leads to warehouse challenges as in the Northeast where there’s a bit of a tight demand on warehouse space. There’s pricing, and then you also have to deal with the operational challenges of managing and manufacturing the inventory in a tight labor market.

SJ: What do you think are the three biggest learnings or takeaways from having gone through the pandemic in terms of how companies look at their business going forward?

T.E.: One of the things I think is most beneficial to companies is that they have to have the right management team who can address challenges that are unforeseen—I think it’s critical. Two, I think the way that they manage their inventory and the sourcing and supply chain on a go-forward basis must be examined on a constant basis. Three, companies need to make sure they’re focused on managing their costs so they can continue to make the appropriate margins on a go-forward basis.

SJ: What would you say were the top two recurring mistakes that you have seen companies make?

T.E.: That’s a tough question. I think not being prepared for these unexpected events because being able to think out-of-the-box is obviously key. Another challenge has been the shortage of people in the workforce. What will the factory floor in the future look like? And will that expedite a change to more of an automated or robotic process? We’ve definitely had conversations with our clients where they have expressed concern on the wage demands and loyalty of current and future employees and the challenges that can create.