Coupa: Inventory Management key to Mitigating Red Sea Chaos

AP Moller Maersk has warned trade route disruption caused by Red Sea shipping attacks is likely to run into the second half of 2024, and that the situation is set to pose longer-term challenges to the global shipping industry.

Maersk North America Regional President Charles van der Steene told CNBC that customers can expect to see longer transit routes that “into Q2 and potentially Q3”.

He also urged customers to build longer transit times into their supply chain.

Maersk was one of the first major shipping lines to divert vessels away from Red Sea routes in the face of escalating attacks on merchant vessels by Iran-backed Houthi rebels. 

The journey from Europe to Southeast Asia via the Red Sea and the Suez Canal is 8,400 nautical miles – 3,280 nautical miles shorter than diverting ships around the African Cape. An estimated 15% of the world's shipping traffic transits via the Red Sea en route to the Suez Canal.

Maersk has tried to compensate for the delays by adding additional vessel capacity to its schedule, van der Steene said.

Responding to the ongoing Red Sea situation, Mat Woodcock, RVP Supply Chain Strategy at Coupa, told Supply Chain Digital that getting goods to the right place at the right time "has never been more difficult”. 

He adds: ”We are already seeing brands worldwide warning of delays, but this only just brushes the surface.”

Woodcock advises businesses who are looking to mitigate the impact of shipping delays to “properly manage inventory”. 

Coupa: Inventory management 'can mitigate disruption'

He says: “Excess inventory ties up critical working capital, lengthens the cash-to-cash cycle and further rattles an already fragile supply chain. 

“We can’t just revert to the traditional ‘just-in-case’ inventory model, whereby products are created in advance and in excess of demand.” 

Woodcock warns that, in an economy driven by fast-paced ecommerce, by the time delayed products arrive at their intended destinations they may no longer be in demand.

“They will likely sit on a warehouse shelf as surplus and will then need discounting,” he cautions.  

For retailers, he says, such issues play havoc with seasonal and promotional planning, and added that for those struggling financially, “the impact of increased costs and increased inventory levels tying up working capital and slowing cash flow could push them to the financial edge”. 

He adds: “With both risk control and capital being diverted towards managing inventory, the supply chain is left in a volatile state. 

“By replicating the supply chain in digital form, otherwise known as a digital twin, companies can gain a better vantage point of oncoming challenges and ask critical ‘What-if?’ questions ahead of time.” 

This, he says, helps supply chain leaders prepare for any scenario – “whether that be geopolitical conflicts or natural disasters”. 

He adds: “With the help of AI-driven resilient design and planning technology, companies can then either proactively avoid the disruption or blunt it.

“The sooner companies can master managing their inventory and supply chains the sooner they can navigate and execute change all while bracing for oncoming uncertainty.”  

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