Abstract
In the context of maintaining the efficiency of supply chains, risk management is crucial as a set of measures aimed to prevent threats to forecasting and a drop in customer interest due to inadequate control over the sale process. This work aims to determine what forecast and inventory risks exist, and what mitigation strategies can be productive in relation to the identified issues. Inaccurate forecasts due to long lead times, product obsolescence and variety, inventory holding costs, demand and supply uncertainty, and some other problems are considered critical risks to maintaining the sustainability of supply chains. As a research methodology, a literature review will be applied, and specific academic sources will be involved. By analyzing the relevance and limitations of the resources regarding the topic under consideration, future research perspectives will be proposed to analyze the implications of specific approaches to risk management.
Introduction
Ensuring a highly competitive position, organizing sustainable demand, expanding the range of target audience, and many other valuable business objectives are achieved by maintaining sustainable supply chains and control over the storage and distribution of products. Nevertheless, in the context of dynamic market interests and other incentives, potential risks arise, which are associated with incompetently predicted supply chain mechanisms and the biased assessment of the current market situation. The analysis of these threats is one of the key goals promoted in the field of supply chain forecast and inventory risk management. This paper aims to present the main threats associated with forecasting supply chains and inventory, as well as ways to mitigate them. As a tool for analysis, a literature review will be conducted, and relevant academic sources will be utilized as a rationale for interpreting the findings. The topic under consideration is of high importance in the field of business management since financial assets, sales volume, and other valuable indicators of successful market activity largely depend on how successfully supply chains are organized and whether a selling party can ensure stable sales by following objective strategies control over products.
Main Forecast Risks
Risk assessment is a significant aspect of supply chain control, and in academic literature, individual studies aim to identify these threats and their implications for businesses. For instance, Rogers et al. (2015) consider this topic in the context of the activities of Indian companies and note that long lead times are a critical constraint inhibiting goods supply and entailing inaccurate forecasts. In addition, the authors note that “inadequate production planning and lack of information sharing compound this issue” (Rogers et al., 2015). Particular attention is also paid to the aspect of seasonality that largely determines the indicators of demand and influences the accuracy of forecasting. As Kumar and Park (2019) state, fluctuations in the dynamics of sales depend on how relevant a particular product is in a given period. Thus, the practice of risk management should include analyzing not only operational but also other conventions that may affect the stability of sales and the sustainability of supply chains. Otherwise, the threat of incorrect forecasts increases under the influence of the aforementioned factors that hinder the compilation of an adequate analytical program.
Under the impacts of individual incentives, unique market requirements imposed on suppliers and sellers are the factors that carry forecasting risks. According to Kumar and Park (2019), individual goods have short life cycles, such as food products, which dictates strict storage and delivery conditions. If these conditions are violated, supply chains are disrupted since it takes much time to establish a sustainable distribution regime and eliminate disruptions. Rogers et al. (2015), in turn, address the issue of globalization as one of the main factors that pose a potential threat to effective forecasting. The researchers remark that product variety is a consequence of expanded consumer requirements and, therefore, the need to create the required level of demand (Rogers et al., 2015). In such conditions, errors in forecasts regarding the volume of goods for sale are likely since constantly changing consumer preferences can affect the share of sales negatively. As a result, various factors and aspects threaten the effective planning and organization of supply chains in the face of dynamic demand and a wide variety of goods in the global market.
Main Inventory Risks
Inventory risks are constraints that prevent suppliers and sellers from marketing products in a specific volume due to crucial restrictions. Shi and Liu (2020) examine these threats and note that the rate of product obsolescence can be one of the indicators of such risks. The authors argue that this nuance is relevant to different areas of sales and can manifest itself either as a slight restriction when a small volume of expired goods needs to be replaced or as a significant threat to business when a large batch of products cannot be sold (Shi & Liu, 2020). For suppliers and sellers who handle perishable products, this risk is extremely severe since improper control can lead to significant expenses and the loss of consumer loyalty. According to Lücker et al. (2019), this problem can be exacerbated by inventory holding costs when storage expenses are unreasonably high and cannot be covered even by successful product marketing. In such conditions, stakeholders are forced to suffer losses due to incompetent supply chain management and untimely measures to eliminate risks associated with product supply and storage.
In the context of the globalization of trade and dynamic consumer interests, various researchers consider demand and supply uncertainty as one of the factors associated with inventory risks. Lücker et al. (2019) note that inventory holding costs are an indicator that correlates with the demand uncertainty criterion directly. The researchers argue that if suppliers or sellers have to spend funds on product storage, they should take into account the risk mitigation inventory parameter that allows them to set sales boundaries and maintain relatively stable demand (Lücker et al., 2019). Shi and Liu (2020) supplement this information with the reasoning that the parameters of supply and demand should be taken into account as the factors that allow predicting the rate of product obsolescence. When suppliers and sellers are unable to secure a stable demand for specific products, the criterion of uncertainty is probably ignored, which, in turn, leads to unpredictable sales and affects sales ability negatively due to poor forecasting. Therefore, the aforementioned risks deserve particular attention as the factors that complicate maintaining sustainable supply chains and sales, thereby making it difficult to achieve customer loyalty.
Ways to Mitigate Forecast and Inventory Risks
Eliminating the risks associated with ineffective forecasting and inventory problems in supply chain management is to be carried out through productive strategies. As Wan and Sanders (2017) argue, the key goal of such practices is “to reduce forecast bias” (p. 123). The authors evaluate the available interventions and note that establishing vertical integration to control supply chains is one of the effective strategies aimed to ensure effective control and, at the same time, reduce potential costs (Wan & Sanders, 2017). In addition, this approach is viewed as a solution to mitigate the impact of product variety caused by globalized market relations. Bandaly et al. (2016) also analyze potentially effective strategies that may address risks, and one of them is the mitigation of supply and demand uncertainty by assessing consumables and comparing supply and sales performance over a specific period. Such a detailed evaluation can help identify the key patterns in demand fluctuations and adjust supply based on the data obtained about the main drivers of such fluctuations. At the same time, other problems and risks also require analyzing from the perspective of relevant interventions to maintain a sustainable distribution system.
One of the aforementioned threats concerning inaccurate forecasting is caused by long lead times. Bandaly et al. (2016) offer to use this indicator to its advantage and create a mechanism of interaction between the supplier and the customer in which the performance of a supply chain is determined by the latter. In other words, the consumer determines the required volume of products and the timing of their delivery independently, and on the basis of these parameters, the supplier regulates activities in accordance with specific requirements, which, in turn, helps avoid delays and the discontent of the target audience. In addition to the issue of demand uncertainty, Boulaksil (2016) proposes to not only establish safety stocks but also use highly accurate mathematical calculations. According to the author, by utilizing such modern algorithms, sellers can avoid forecasting errors and coordinate supply and demand parameters due to the assessment of the optimal amount of goods to supply to the market based on a special modeling scenario (Boulaksil, 2016). In this mode, risks are minimum, but one of the main conditions is to involve all the necessary data to carry out accurate calculations correctly.
The problem of product obsolescence is costly to suppliers and sellers, and some academic studies mention this issue and ways to mitigate it. Bandaly et al. (2016) state that to avoid a decline in sales due to consumers’ low interest in obsolete goods, a product component control strategy should be part of a sales program. In other words, assessing the threat of component relevance can reveal which aspects are at risk of losses and establish the supply of updated goods. In addition, this approach addresses some other crucial challenges, such as seasonality and product variety. In their research, Wan and Sanders (2017) state that the supply of any network depends on market trends significantly. Thus, analyzing the preferences of the target audience timely and adapting supplied products in accordance with the results of risk assessments are objective measures to ensure the safety of forecasting. Without this approach, the threat of expenses incurred by inventory holding costs increases, which is an undesirable outcome. Therefore, in academic literature, implementing effective strategies to address the aforementioned risks is imperative to maintaining sustainable risk management practices and avoiding threats to supply chain effectiveness.
Relevance and Limitations of the Existing Literature
The reviewed academic sources used as a background for the conducted literature review offer valuable information that is applicable to the field of supply chain forecast and inventory risk management. The authors’ findings, individual hypotheses, and solutions to potential problems allow utilizing these resources for businesses of different profiles and applying the results of assessments in distinctive areas to ensure the sustainability of supply chains. In a modern business environment, competition and the need to adapt to contemporary market trends are the essential aspects of successful entrepreneurial activities. The reviewed academic literature offers valuable assessments of what problems in risk management exist today, and what tools and intervention strategies are potential mechanisms for mitigating threats and strengthening forecasting.
At the same time, in terms of covering the problem comprehensively, the existing literature has some limitations. In particular, most of the sources are focused on industrial-type companies, and supply volume issues are discussed on a large scale, which may not be relevant to organizations specializing in narrower business activities. In addition, many studies discuss one or two risks, which explains the need to evaluate multiple articles to obtain a comprehensive picture and evaluate the factors to prevent threats to supply chains. Nevertheless, despite these limitations, the findings can be utilized usefully as a background for developing effective intervention strategies and maintaining sustainable risk management.
Future Research Perspectives
To evaluate strategies aimed to address risks to forecasting and inventory in supply chains, future research perspectives may relate to the comparison of individual approaches and analysis of different interventions. For instance, the practice of component analysis mentioned as a driver for preventing product obsolescence and reducing demand can be studied from the standpoints of both suppliers and consumers to determine mutually beneficial market conditions. Identifying the benefits for each party may help find trade-offs and create a sustainable supply management program based on the interests of the target audience. The same goes for projects designed to coordinate seasonality and product variety. Evaluating customer preferences through a system of feedback and suggestions can be an effective tool for coordinating supply algorithms and establishing a sales system.
The empowerment of risk management through appropriate strategies needs to be assessed on the example of both large and small companies involved in the interaction with consumers and acting as intermediaries in supply chains. Based on this analysis, one can obtain the most objective data on how such mechanisms work in organizations of different profiles, and, by utilizing this information, determine whether the aforementioned intervention algorithms may be used universally or not. If unique implications and systems for the development of specific strategies are found, research attention should be directed to all the possible solutions equally to find individual coordinating approaches and exclude forecasting bias.
Conclusion
The field of supply chain forecast and inventory risk management requires utilizing relevant strategies and approaches to minimize threats, and the analysis of specific academic resources is a valuable mechanism to ensure sustainability in this area and identify potentially viable approaches. The problems of inaccurate forecasting, product diversity and obsolescence, demand and supply uncertainty, and other aspects of planning are relevant to the modern business environment, and ignoring them is fraught with significant expenses and the loss of consumer interest. Despite some limitations, the reviewed sources offer useful information about the current issues and ways to eliminate them, and future research perspectives may relate to comparing data from companies of different profiles and highlighting unique risk mitigation strategies.
References
Bandaly, D., Satir, A., & Shanker, L. (2016). Impact of lead time variability in supply chain risk management. International Journal of Production Economics, 180, 88-100. Web.
Boulaksil, Y. (2016). Safety stock placement in supply chains with demand forecast updates. Operations Research Perspectives, 3, 27-31. Web.
Kumar, R. L., & Park, S. (2019). A portfolio approach to supply chain risk management. Decision Sciences, 50(2), 210-244. Web.
Lücker, F., Seifert, R. W., & Biçer, I. (2019). Roles of inventory and reserve capacity in mitigating supply chain disruption risk. International Journal of Production Research, 57(4), 1238-1249. Web.
Rogers, H., Srivastava, M., Pawar, K. S., & Shah, J. (2015). Supply chain risk management in India – Practical insights. International Journal of Logistics Research and Applications, 19(4), 278-299. Web.
Shi, Z., & Liu, S. (2020). Optimal inventory control and design refresh selection in managing part obsolescence. European Journal of Operational Research, 287(1), 133-144. Web.
Wan, X., & Sanders, N. R. (2017). The negative impact of product variety: Forecast bias, inventory levels, and the role of vertical integration. International Journal of Production Economics, 186, 123-131. Web.
