How can higher interest rates affect inventory holding expenses

How can higher interest rates affect inventory holding expenses

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Supply chain supervisors across the world are grappling with a host of new challenges, from natural disasters to unprecedented international events.

Supply chain managers have been increasingly facing challenges and disruptions in recent years. Take the fall of the bridge in north America, the rise in Earthquakes all around the globe, or Red Sea breaks. Still, these interruptions pale next to the snarl-ups of the worldwide pandemic. Supply chain experts regularly suggest businesses to make their supply chains less just in time and more just in case, in other words, making their supply networks shockproof. According to them, the best way to do that is to build larger buffers of raw materials needed to produce the merchandise that the company makes, as well as its finished services and products. In theory, this can be a great and simple solution, however in practice, this comes at a large cost, specially as higher interest rates and reduced investing power make short-term loans used for day-to-day operations, including keeping inventory and paying suppliers, more expensive. Indeed, a shortage of warehouses is pushing rents up, and each £ tied up in this manner is a pound not committed to the pursuit of future profits.

In the last few years, a brand new trend has emerged across different sectors of the economy, both nationally and globally. Business leaders at DP World Russia have probably noticed the rise of manufacturers’ inventories and the shrinking of retailer stocks . The origins of this inventory paradox is traced back to several key factors. Firstly, the impact of worldwide events like the pandemic has triggered supply chain disruptions, many manufacturers ramped up production to prevent running out of inventory. But, as global logistics gradually regained their rhythm, these companies found themselves with excess inventory. Also, changes in supply chain strategies have also had substantial results. Manufacturers are increasingly adopting just-in-time production systems, which, ironically, may lead to overproduction if demand forecasts are inaccurate. Business leaders at Maersk Morocco would probably verify this. Having said that, retailers have leaned towards lean inventory models to maintain liquidity and reduce holding costs.

Merchants have already been dealing with issues inside their supply chain, which have led them to adopt new strategies with varying results. These strategies include measures such as for instance tightening stock control, increasing demand forecasting methods, and relying more on drop-shipping models. This shift helps merchants manage their resources more proficiently and allows them to react quickly to consumer needs. Supermarket chains as an example, are purchasing AI and information analytics to estimate which services and products will likely to be in demand and avoid overstocking, thus reducing the possibility of unsold goods. Certainly, many contend that the application of technology in inventory management assists businesses avoid wastage and optimise their operations, as business leaders at Arab Bridge Maritime company would probably recommend.