Do you remember the beginning of the pandemic, when you couldn’t find toilet paper or Lysol wipes anywhere?
Research co-authored by Schulich Professor M. Johnny Rungtusanatham finds that shortages within supply chains are not only due to increased demand, but also to companies not stockpiling products. The research paper “Managing Critical Spare Parts within a Buyer–Supplier Dyad: Buyer Preferences for Ownership and Placement” appeared earlier this year in the Journal of Business Logistics.
“Shortages experienced is not just due to sudden demand spikes but also because of aversion to stockpiling,” said Rungtusanatham, Canada Research Chair in Supply Chain Management. “Not stockpiling is actually sage advice over the last two decades, especially for goods with low supply uncertainty.”
The research found that buyers have a strong preference for consignment-based inventory management approaches, thereby decoupling inventory ownership and inventory placement responsibilities. Companies can only have so many items on the shelves in their stores, therefore when consumer demand suddenly increases it is difficult to meet that demand not having instant access to additional products.
One industry where aversion to stockpiling is notable is airplane parts, due to the cost of inventory. This has a direct impact on supply chains; if a plane needs to stay grounded while it is repaired products cannot be moved as a result.
The research also suggests that buyers have a bias against inventory speculation despite its use in practice and analytical models, and a strong preference for inventory postponement when the level of supply uncertainty is low.