Reactive to Proactive: Blockchain for Inventory Planning, Replenishment

When it comes to inventory planning and replenishment, companies and brands traditionally operate under a reactive model. Demand rises, so they increase production and output. Items run out of stock, so they send more goods to fulfilment centers. However, a reactive model also means they are always one step behind the curve.

Inventory planning, replenishment and forecasting become major challenges as they try to navigate an increasingly complex marketplace, where demand is constantly fluctuating, the number of SKUs is growing at an exponential rate and manufacturing lead times can vary significantly from product to product.

Moreover, a reactive approach invariably leads to supply and demand imbalances. Companies end up with excess inventory or slow turnover due to heightened output on items that were in high demand – but no longer are. This also results in hefty carrying costs ultimately leading to product markdowns. On the other hand, they may under-project demand and fail to deliver adequate replenishment on popular products, resulting in out-of-stocks and therefore lost sales.

The problem is lack of visibility into consumer demand. After all, today’s multichannel supply chains stretch across widespread suppliers, production sites and warehouses, with each using its own unique processes, databases and systems. This creates data silos and fragmented operations, making it hard to gauge demand downstream and properly plan upstream in the supply chain.

Now blockchain technology offers a radical, new way to connect these disparate parts. It enables companies to shift from a reactive approach to inventory planning, replenishment and forecasting to a proactive one.

A Breakdown of Blockchain

Blockchain is certainly a hot topic in numerous industry circles yet a lot of confusion still exists. Originally developed in 2009 to track the exchange of Bitcoin, blockchain has evolved into a way for organizations across virtually all industries to digitize and track their transactions in an immutable, connected ledger. These transactions are stored in secure cryptographic “blocks.”

Every transaction is visible to all parties within the network. This level of transparency drives trust, accountability and collaboration among everyone connected through the blockchain. Further, the data is available in real time, which helps streamline and support critical business decisions, such as in the case of inventory planning and replenishment in the supply chain.

Blockchain for the Supply Chain

According to the 2018 MHI Annual Industry Report, adoption of blockchain in the supply chain is now about 5% but is projected to rise to 54% over the next five years. The growing adoption is understandable, as the technology enables companies to connect every part of their supply chains with a complete, secure and permanent record of transactions from end to end.

Further, it establishes a centralized data repository that is accessible to everyone within the supply chain—from suppliers and production sites, to distribution and fulfillment. The resulting data transparency via blockchain can help address the top challenges of reactive planning and replenishment.

Notably, since the data flows seamlessly and in real time between every sector of the value chain, organizations can gain instant insight into what consumers are buying. They can thereby optimize manufacturing planning and forecasting based on demand, rather than simply react to inventory stockouts. Companies can ensure that they always have the right types of SKUs and amount of stock in their warehouses.

No matter how much their marketplaces may fluctuate, they will always have product available to satisfy consumers with limited excess, thereby eliminating lost sales, minimizing carrying costs and increasing revenue and profitability.

Blockchain can help companies and brands shift their approach to inventory management, replenishment and forecasting from reactive to proactive. They can drive business growth with complete transparency and real-time data flow from end to end. They can thereby optimize manufacturing levels upstream in the supply chain to meet consumer demands downstream, and back.

Pratik Soni is co-founder of Omnichains.com

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