We’re now in the third oscillation of the supply chain bullwhip, with demand picking up and suppliers scrambling to get production back on line. One of our colleagues pulled out a Dr. Pepper “Ugly” soda, and said, “You have to see this.” He peeled the raspberry flavor sticker off of the 12 oz. aluminum can, revealing that the can was actually printed with a lime-flavor label underneath.
This won’t be unusual for the next several months, and if your company creates physical products you’re probably feeling some combination of the wood shortage, affecting paper products, the semiconductor shortage causing prices for fifteen-cent chips to surge to several dollars and even labor shortages at ports keeping transoceanic cargo in limbo in the L.A. and San Francisco bays for weeks. Meanwhile, consumers are back and ready to buy, and unfortunately the supply shortage is putting many businesses in a position of failing to meet demand and jacking up prices.
Managing inventory during this time is difficult—providing consistent supply is challenging at any time, let alone in unprecedented times. At Ministry of Supply, we make apparel and wearable devices that have been hit by all of these shortages. Over the past six months, we’ve found three ways to react and meet demand, even under supply shortages.
Repurpose raw materials
There may be a surplus of underutilized materials or “spare parts” for other industries or even within your own product line that can be repurposed for in-demand products. During the initial weeks of the pandemic, we reallocated raw yarn that was used for making our knit sweaters to make PPE like masks, and later that fabric that was slated to make a variety of garments from blazers to easy-fitting, pull-on pants.
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Raw materials are often the longest-lead component of manufacturing, and will often take the longest to rebound. Even if your factory can get back up and running quickly to assemble, raw materials ultimately constrains what you can make. But, they often can be a fraction of the total cost of goods, so taking positions in raw materials can be a cost-effective means of tempering volatility in supply, rather than finished goods which include assembly costs, duties and other value-added costs.
One of our most important and impactful moves was taking bigger bets on raw materials, and flex how you use them in response to demand. Despite falling demand for blazers, we found that the stretchy fabric we used could be readily used to make garments (e.g. stretch-waistband pants) that people wanted in the pandemic. So, we decided to continue production of this material but not dye it. That way we could react to demand for finished products in just 30 days—as opposed to the typical 3 months. This required a nominal investment of less than 15 percent of the final cost of the product and limited risk, but with huge flexibility to meet demand given we had raw materials on hand.
Toyota, which despite being known for it’s just-in-time manufacturing, took a similar approach by stockpiling the critical—but inexpensive—chips over the past year while no one was buying cars. Now, they’ve been able to recover production, while manufacturers like GM have been forced to halt lines over components that cost merely cents.
Rework deadstock inventory
You may have some inventory that has fallen out of demand—but with a small investment in modification, you can have a new product that meets shifting consumer expectations post-pandemic.
In our case, we had thousands of dress pants that just simply were not of interest in the Zoom world. We sent batches of a few hundred at a time from our warehouse to a domestic factory to slim down the leg opening, crop it and insert an elastic waistband making them work-from-home and sneaker-friendly.
Inventory sitting in your warehouse has basically already accrued all of its production costs. But, it might only require minimal investment to transform that merchandise to ultimately sell at a better margin than liquidating, sitting on it or selling at a discount. And, you can test this through smaller batches to evaluate market response without commitments to massive production runs that you’d typically find in overseas factories.
Repackage for new consumer uses
With travel, hybrid work and shopping behaviors rapidly changing consumer preferences, you may find your existing inventory irrelevant. Re-merchandising your inventory can help customers see existing products in a new light—highlighting use cases that are relevant for post-pandemic life.
This can range from photoshoots of products in different scenarios (we reshot our entire site to show comfortable, “untucked” looks to reposition our dress shirts as WFH friendly) to renaming products to help them align to desired search terms. This may change the hierarchy of messaging of your products’ benefits, where what was formerly a minor feature may be elevated to the banner message. Simple marketing changes to copy and imagery can reenergize otherwise slow-moving products—and for a pretty small investment.
Nearly all businesses will find themselves at some point delaying product launches or find themselves giving the “due to supply-chain shortages” note to customers, but by creatively using and reallocating the materials in your supply chain and products in existing inventory, you may be able to not only fulfill demand, but also quickly discover and test new products during the process.
After graduating from MIT in 2011, Gihan Amarasiriwardena, a creative and curious engineer at heart, partnered with classmate and friend Aman Advani to create the scientifically driven clothing company Ministry of Supply. With the founding of this company, Amarasiriwardena is pursuing a lifelong passion to create a performance apparel brand built around human-centered design.