Supply chain disruptions: Managing inventory risks with your accountant

As a South African business owner, you may well have experienced the impact of supply chain disruptions. From the pandemic to global conflicts, natural disasters, and more – businesses have faced unprecedented challenges in obtaining raw materials, components, and finished products. These disruptions not only impact your ability to meet customer demand but can wreak havoc on your inventory management and cash flow if not properly addressed.

While supply chain issues may seem outside of an accountant’s typical realm, the truth is that we are well-positioned to help you develop strategies to mitigate inventory risks and improve resilience. At the core of our expertise are financial planning, forecasting, and risk analysis – all critical components when it comes to managing disruptions.

Here are some of the key ways your accountant can support you:

Demand forecasting and safety stock

We can analyse your historical sales data, market trends, and other factors to develop robust demand forecasts. This allows you to calculate optimal safety stock levels for your key inventory items to create a buffer against delays or shortages from suppliers. Maintaining the right safety stock is critical, as too little leaves you vulnerable to stock-outs, while too much ties up excessive working capital.

Supplier diversification and risk assessment

An over-reliance on a single supplier in any given region or country increases your vulnerability to localised disruptions. We can perform risk assessments of your supplier network and make recommendations for diversification to improve resilience. This may involve identifying backup suppliers, nearshoring/onshoring alternatives, or implementing strategic supplier management practices.

Inventory optimisation and cycle counting

Particularly in times of supply chain volatility, it’s crucial to have accurate inventory records and a deep understanding of your inventory turns and carrying costs. We can implement cycle counting programmes, optimise reorder points and lot sizes, identify slow-moving/obsolete SKUs for liquidation, and generally ensure you’re carrying the ideal inventory levels aligned with your working capital needs.

Supply chain financing solutions

One of the biggest impacts of supply chain disruptions is increased working capital requirements and potential cash crunches. We can give you advice about various financing vehicles, such as supply chain finance programmes, inventory finance loans, and letters of credit to improve liquidity and support your inventory needs during disruptions.

Technology evaluation and implementation

Inventory management and supply chain technologies – such as barcoding, RFID, WMS/ERP systems and control tower solutions – can dramatically improve visibility, traceability and management of your inventory and supplier network. We can assess the costs and benefits, and assist you with the selection and implementation of the ideal solutions for your business needs.

The key takeaway is that effectively managing inventory risks requires a cohesive strategy spanning operational factors like safety stock levels and supplier diversification to financial elements like cash flow forecasting and financing requirements. Your accountant is uniquely positioned to bring these pieces together into a comprehensive plan.

Proactive businesses take measures to enhance supply chain resilience and refine inventory practices to better position them in navigating future disruptions. Don’t wait until the next crisis hits – start working with your accountant today to review your existing inventory management approach and develop a robust action plan.