NETSTOCK RESEARCH
Introduction
The world of supply chain management is rapidly evolving. Businesses are taking new approaches to maximize efficiency amid lingering market challenges, such as geopolitical tensions, truck driver shortages, rail strikes, and extreme weather impacts. As they navigate an intricate web of suppliers, fluctuating demands and work to mitigate risk, it’s important to have visibility into the most up-to-date market trends and access to robust inventory management strategies.
Drawing insights from Netstock’s global customer base of small and medium-sized businesses (SMBs), this report explores the current state of supply chain and inventory management—examining key trends such as the movement of goods, the biggest challenges suppliers face today, excess inventory and the prevalence of AI adoption in future supply chains. These insights underscore the critical need for robust inventory management software across logistics operations, ensuring businesses are resilient against future disruptions and sustain growth in an ever-changing market.
Demographics and Methodology
- Netstock drew insights from anonymized and aggregated platform data of its 2,400+ customers worldwide.
- Netstock also conducted an in-depth survey with Netstock customers representing small and medium-sized businesses (under $250M in revenue) around the world. Over 300 Netstock users participated in this survey.
Benchmark Report Highlights
- State of the Industry: Efficiency and Uncertainty | SMBs are holding fewer goods, but they still struggle with slow-moving inventory. While total inventory value dropped 9% year-over-year, nearly 80% of SMBs suffer from a combination of insufficient forward planning and being overstocked. Yet in spite of this, purchase orders rose 9% in early 2023 and surged 16% ahead of the holiday season.
- Supplier Reliability | Long lead times and lead time variability are top challenges, with 72% of SMBs facing unpredictable delivery times. Lead time variability is most common for those sourcing from China (67%) compared to the US (56%).
- Nearshoring | American SMBs are shifting production closer to home, with only 25% preferring offshore suppliers. However our report finds that the majority of goods are being produced elsewhere: China (65%), Canada (21%), Mexico (9%).
- The Excess Problem | Excess stock grew to 38% of SMBs’ inventory, indicating struggles with robust inventory management. Over-purchasing due to supply concerns burdens capital, with large SMBs (500+ employees) seeing overstocking rise to 44%.
- AI | Only 23% of SMBs have invested in AI. Data integrity or security risks (23%) and inconsistent answers (20%) are the main obstacles, rather than costs or stakeholder buy-in. Notwithstanding, respondents see a clear path to utilizing AI within their supply chain: forecasting (52%), inventory optimization (48%), and demand planning (44%).
I. State of the Industry: Efficiency and Uncertainty
Leaner Inventories
From a bird’s-eye view, the state of inventory management looks encouraging. Small and medium-sized businesses have been holding onto fewer goods over the past year: a promising sign of high performance.
Total inventory value per company dropped 9% year-over-year worldwide since the beginning of 2023, slightly more dramatically for SMBs in North America and Africa (10%) than in Australasia (6%) and Europe and the UK (4%). North America’s sharp decline shouldn’t come as a surprise, as high interest rates continue putting pressure on US companies to optimize their inventories and keep costs low.
Inventory Scale | Median $ Inventory Holding Trend by Industry
Inventory Scale | Median $ Inventory Holding Trend by Region
Moving Goods Through Global Uncertainty
Naturally, lower inventories go hand-in-hand with moving more goods. Inventory turnover, or stock turn, is a top indicator of how well a company manages its stock. The answers to two important questions, “How much am I selling?” and “How much am I holding?”, are plotted against each other to help teams quantify their supply chain efficiency.
Global stock turns hovered around an average of 5.3 over the past year, with hints of year-over-year improvement. SMBs have seen a 6% rise in stock turns since a post-COVID Q1 2023, including a more pronounced 9% boost for those in North America.
Stock Turn Estimates | Global Aggregate Trend
While this overall climb tells a welcome story of efficiency, a closer look reveals the proverbial foot being taken off the gas. Stock turns have either plateaued or even dipped since late 2023, as companies struggle to move goods in a volatile logistics market.
Inflation and high interest rates, conflict in the Middle East and Ukraine, lingering Australian labor and American truck driver shortages, post-Brexit economic recovery, a drought in the Panama Canal, strikes and port stoppages around the world, and more have kept supply chains under stress since the end of the pandemic—and it’s all weighing on businesses’ ability to move inventory.
North American stock turns dropped to an average of 4.7 in Q3 2023, before bumping back up to 5 and leveling out through early 2024; Europe and the UK peaked in Q3, then fell 9% and haven’t recovered since; that same quarter also marked the beginning of a long, deflating plateau in Australasia and Africa. Just one of many similar examples, large African SMBs (over 500 employees) still haven’t fully caught up from a dramatic 27% drop early last year.
Stock Turn Estimates | Average Trend By Region
Download Deep Dive Industry Insights
This report supplement provides deeper industry-specific details on:
- Lead Times
- Stock Turns
- Overstocking
- Understocking
The “X Factor” of Buying and Selling
Companies have struggled to balance their spending with this stagnant turnover. Purchase orders steadily rose by 9% in early 2023 as post-COVID supply chains reopened and businesses replenished their stock. This rising inventory spend peaked in a pivotal Q3 when global disruptions came to a head and businesses stocked up in anticipation of shortages. Retailers especially rushed to get ahead of holiday shopping: their inventory spend jumped up 16% in the first half of 2023.
As inventory spend was surging, however, stock turns and sales started to level out. SMBs weren’t moving enough goods to keep up with the big stockpiles they had just accumulated, so purchase orders were forced to slide back down in an attempt to thin out all the extra inventory sitting in warehouses. By 2024, average inventory spend had returned to a near identical pre-crisis level (less than 1% difference) from a year earlier.
Most SMBs today purchase orders at a comfortable 80-120% of their sales at cost (more optimal than the 120-300% danger zone), but still struggle to get rid of slow-moving inventory. Ordering the right amount of the right goods (at the right time) can be the “X Factor” in keeping stock turns up and warehousing costs down.
Inventory Management Behaviors
1 15% of SMBs - Running lean, businesses in this quadrant are keeping warehousing costs to a minimum.
2 5% of SMBs - Strategic buying for bulk discounts or stocking up for a big promotion or surge in demand. Businesses in this quadrant run the risk of building too much excess.
3 56% of SMBs - Insufficient forward planning - either sitting on a stockpile of slow-moving items or buying to replenish excess, rather than cutting back purchase orders to increase turns.
4 24% of SMBs - Overstocked - need to cancel surplus orders and figure out a plan to reduce the excess.
II. Supplier Reliability
Rising Lead Times Around the World
Supply chain interruptions can start a troubling snowball effect. The more broken the chain, the more likely a delay at some point or another, the longer it takes for suppliers to deliver goods.
Recent supplier performance seems to mirror what we just saw in stock turns and efficiency. Lead times began 2023 on an encouraging downward slope, dropping a full week from an average 61.5 days to 54.1 by Q3. But when global unrest knocked supply chains off course and turnover plateaued in the second half of the year, supplier delays predictably picked back up all the way into 2024.
Lead Time Benchmark (Days) | Stars
| Geography | Manufacturing | Retail Trade | Wholesale Trade | Other |
|---|---|---|---|---|
| North America | 24.9 | 17.4 | 18.7 | 15.7 |
| Europe & UK | 25.2 | 17.2 | 14.1 | 15.5 |
| Australasia | 33.5 | 20.4 | 27.9 | 20.2 |
| Africa & Other | 19.0 | 21.5 | 13.4 | 11.8 |
Lead Time Benchmark (Days) | Stragglers
| Geography | Manufacturing | Retail Trade | Wholesale Trade | Other |
|---|---|---|---|---|
| North America | 79.6 | 90.2 | 63.1 | 78.2 |
| Europe & UK | 93.2 | 101.5 | 68.2 | 71.6 |
| Australasia | 89.4 | 90.3 | 93.8 | 76.0 |
| Africa & Other | 74.6 | 51.8 | 57.1 | 73.4 |
We see this volatility play out across geographies. Lead times in North America started 2023 with a steep half-year drop of 14%, before leveling out and even ticking back up a slight 1% by 2024. Europe and the UK found some relief in having access to all their neighboring markets and supply arrangements. The region endured only a quick 3% lead time bump in Q4 when global unrest heightened, then adapted and settled back into its otherwise nice downward year-over-year slope.
The most striking turn of events was in Australasia, where lead times dove 18% in the first half before spiking back up a full week by 2024 (a 14% increase). Lead times in Africa similarly fell 10% down to 43.6 days in early 2023, then reversed course as port gridlocks persisted, the Red Sea attacks disrupted trade on the Suez Canal, and delays bubbled up. Africa struggled to recover from this supply chain shock: lead times kept rising, and we already know that stock turns (efficiency) completely lost momentum and flatlined by the new year.
Supplier Challenges
Long lead times aren’t the only burden on supplier performance. Our customer survey unveils additional challenges that are top-of-mind for SMBs.
The runaway top supplier challenge for respondents is lead time variability (72%), suggesting that inconsistent or unpredictable deliveries can be an even bigger bane to optimization than long lead times (58%). Minimum order quantities, or MOQs, are another major challenge (54%), leaving businesses stuck with no choice but to order more than what they need or want.
Top Supplier Challenges
Of course, no supplier is perfect. Businesses will inevitably face a number of these hurdles regardless of where the goods are coming from, whether it’s China (65%), the US (53%), Canada (21%), or Mexico (9%). However, SMBs can still make informed supplier decisions to stay cost-effective. Sea freight (34%) is the preferred transport mode over land (17%) and air (2%)—it tends to be the cheapest option when rail and truck are ruled out for overseas shipments, and often has the most reliable lead times. Chinese ports in particular are some of the most efficient in the world, with relatively quick delivery times that mostly offset some bumps in the in-port consolidation process.
The Rise of Nearshoring in the US
While China presents an attractive option for many, the top choice for American businesses is increasingly to bring the whole supply chain closer to home. With looming tariff challenges and supply chain disruptions on the rise, American SMBs are shifting away from their reliance on overseas supply in favor of domestic production via nearshoring. In fact, only 25% of US respondents prefer offshore suppliers over domestic.
Finding Another Option
Whether dealing with unpredictable lead times or overwhelming MOQs, businesses must stay agile and embrace alternative procurement strategies. Our survey revealed that two highly effective options, vendor managed inventory and consignment, may be underutilized.
With vendor managed inventory (VMI), businesses can hold onto inventory while a supplier takes on the burden of managing it—and they often won’t be charged for certain items until they’re sold. VMI is an attractive arrangement, yet only utilized by 29% of survey respondents. An even smaller minority (19%) use consignment, which allows a supplier to retain ownership of inventory until a retailer sells it.
Put Your Money Where Your Inventory Is
Supplier challenges begin to compound when cash-strapped businesses struggle to pay for their inventory. CFOs and logistics managers should work hand-in-hand to find an approach that works best for their business.
There are many ways to pay for inventory. Over half of survey respondents (54%) pay suppliers with cash, naturally the simplest short-term solution to account for inventory on balance sheets. A comparable 53% pays for inventory on credit. Inventory financing can help SMBs stabilize their cash flow while still growing the business and meeting customer demand.
However, the high risk to suppliers and especially high and varying interest rates in the US can make inventory financing a burden for many SMBs. Credit adds more pressure to move goods quickly and drive revenue that can ultimately be used to pay back lenders. This is particularly important for retail businesses—nearly two-thirds of which (64%) reported financing on credit—that face fluctuating seasonal sales cycles.
Top Supplier Payment Methods
SMBs in need of funds can also turn to factoring, a helpful yet often overlooked practice that can provide quick cash. Factoring allows businesses to sell their accounts receivable or invoices to a third-party (the factor) at a discount. Only 5% of respondents reported using factoring, though, revealing a massive opportunity for more cash-strapped SMBs in a pinch.
Locking in a Rate
Nearly half (47%) of survey respondents secure their supplier rates with long-term contracts: a reliable way to hold suppliers accountable for lead times. Forward cover, or a Forward Exchange Contract (FEC), allows businesses trading internationally to lock in an exchange rate between different currencies. This approach helps combat some exchange rate volatility, but appears to be vastly underutilized. A majority of respondents (77%) use offshore suppliers, but only 17% of them take advantage of forward cover.
III. The Excess Problem
Uncertainty and Overstocking
Excess, also known as overstocking, has been a stubborn problem for many SMBs. As some buyers lose confidence, they tend to “over-purchase” to get ahead of future supply bottlenecks. Unfortunately, some of these purchases include inventory that’s difficult to move—expired, out of season, or simply in low demand—and ultimately a major burden on capital.
Suppliers can be another culprit of excess. Their MOQs leave businesses with a difficult choice: buy too much, or buy nothing at all and find another supplier. Of the survey respondents that reported the most excess, over half (51%) also pointed to MOQs as a supplier challenge.
Relative Overstocking Benchmarks (%inventory in excess) | Stars
| Geography | Manufacturing | Retail Trade | Wholesale Trade | Other |
|---|---|---|---|---|
| North America | 25% | 25% | 26% | 26% |
| Europe & UK | 26% | 30% | 28% | 29% |
| Australasia | 29% | 26% | 26% | 25% |
| Africa & Other | 30% | 27% | 25% | 32% |
Relative Overstocking Benchmarks (%inventory in excess) | Stragglers
| Geography | Manufacturing | Retail Trade | Wholesale Trade | Other |
|---|---|---|---|---|
| North America | 47% | 47% | 47% | 48% |
| Europe & UK | 47% | 51% | 52% | 59% |
| Australasia | 48% | 49% | 48% | 51% |
| Africa & Other | 49% | 50% | 47% | 49% |
Download Deep Dive Industry Insights
This report supplement provides deeper industry-specific details on:
- Lead Times
- Stock Turns
- Overstocking
- Understocking
Excess stock has crawled up from an average of 37% of inventory to 38%. Yes, that’s just one percentage point, but it’s an additional cost that compounds permanently until dealt with. Any upward trend at all indicates companies are struggling more—not less—to optimize their inventory and get rid of excess inventory.
A Little Excess Goes a Long Way
1% of your total inventory value is nothing to sneeze at! Every dollar counts, especially for smaller, fast-growing businesses. If your company holds $3M in inventory, that additional 1% excess feels like a $30,000 loss now and keeps piling up as long as the inventory sits untouched. That’s enough to purchase new manufacturing equipment, lease a more expensive office space, or even give raises to your entire staff.
Small businesses aren’t the only ones with an excess problem. Overstocking can be especially unwieldy for bigger companies with more to manage and more room for error. Large SMBs (over 500 employees) saw a significant year-over-year rise in relative overstocking from 40% to 44% of their total inventory. Take that extra 4% to a big company with $25M, $50M, or $100M in inventory, and the problem becomes massive.
The Hidden Costs of Excess
Why exactly is overstocking such a serious problem? It comes loaded with sneaky costs like labor insurance, holding operations, and warehousing are all massive costs associated with overstocking.
Excess inventory stings even more for companies that finance on credit. They face added pressure to sell goods and pay their lenders, but are also burdened by too much (sometimes immovable) stock and inefficient operations. Over half (54%) of survey respondents with more than 20% excess use inventory financing, suggesting these two metrics—overstock and credit—feed off each other.
The Sweet Spot of Surplus
Overstocking isn’t always a sign of poor planning. In fact, it can be intentional. Some companies might buy up resources for a competitive edge. Others might over-purchase in anticipation of a promotional campaign, boom season, or expected supply shortage such as Chinese New Year shutdowns. There’s nothing wrong with a healthy amount of strategic surplus, or safety stock. The problems start creeping in when businesses go from “having more than enough” to “having too much.” Balancing inventory, while maintaining supply chain visibility of demand, is a fine line to walk, but one that becomes a lot easier with a clear strategy upfront.
We’ve found that a majority of SMBs do a good job of keeping surplus orders relatively low. This is an important first step in curbing excess, but the elusive sweet spot is only found when planned excess and planned safety stock are one in the same.
Overstocking Behaviors
1 18% of SMBs - Building strategic stock or planning upcoming promotions where additional inventory will be moved - ensure stock keeps moving lest it turn to excess.
2 20% of SMBs - Businesses in this quadrant are facing the consequences of poor forward planning and ordering habits that do not reflect market shifts - they need to cancel surplus orders and make plans to reduce excess inventory.
3 26% of SMBs - These businesses are ideally positioned because they adhere to planned, evidence-based levels of safety stock.
4 36% of SMBs - These businesses have a plan to reduce excess inventory, beginning with a curb on surplus orders, and are headed in the right direction if they can maintain the discipline to allow their excess to burn down.
Safety stock can serve as an insurance policy against struggling or unreliable suppliers, helping businesses avoid stockouts and meet customer demand with extra stock already available in warehouses. To have the appropriate safety stock levels for each item, businesses must be able to forecast demand with market intelligence, identify a proper replenishment cycle of inventory, and have visibility into lead times of when stock arrives at warehouses.
IV. Finding a Solution
Deal or No Deal
As businesses optimize toward a safety stock equilibrium, they have a handful of alternative ways to keep chipping away at their excess problem.
A large majority (74%) of survey respondents reported using promotional deals or sales to move excess. While this strategy can certainly be effective, particularly for retailers getting in the holiday spirit, there are some risks. Businesses should be wary of over-indexing on this approach and resetting demand. If consumers always expect a deal, then the market will overcorrect and adjust to lower prices—cutting right into profit margins.
SMBs can also move excess inventory from one warehouse to another understocked facility. Our survey reveals a glaring opportunity for more businesses to do so: of the respondents with the most excess to shed (over 20% of their inventory), only an underwhelming 27% turn to warehouse distribution, meaning the strategy of redistributing stock from overstocked facilities to understocked facilities. SMBs are ripe for a more strategic, thoughtful approach to warehousing.
Balancing the Over-Under
Businesses on the path to reducing excess should be wary of going too far in the opposite direction and understocking. Without sufficient inventory, they fall short of customer demand and lose valuable sales, driving revenue down.
Wholesale and manufacturing SMBs kept stock outs relatively under control over the past year, bringing their lost sales down by 11% and 5%, respectively. Retailers, on the other hand, saw their lost value climb year-over-year, perhaps as they struggled to keep up with volatile consumer demand.
Relative Understocking Benchmarks (lost sales as %inventory) | Stars
| Geography | Manufacturing | Retail Trade | Wholesale Trade | Other |
|---|---|---|---|---|
| North America | 2.8% | 2.6% | 2.1% | 1.9% |
| Europe & UK | 2.5% | 3.3% | 1.8% | 1.5% |
| Australasia | 3.2% | 2.5% | 1.9% | 1.6% |
| Africa & Other | 6.0% | 2.5% | 3.8% | 3.8% |
Relative Understocking Benchmarks (lost sales as %inventory) | Stragglers
| Geography | Manufacturing | Retail Trade | Wholesale Trade | Other |
|---|---|---|---|---|
| North America | 13% | 24% | 11% | 16% |
| Europe & UK | 9% | 20% | 12% | 9% |
| Australasia | 12% | 16% | 9% | 13% |
| Africa & Other | 29% | 12% | 15% | 23% |
Stock outs need to hang in a delicate balance with excess (both planned and unplanned). Overall, a majority of SMBs are keeping inventories replenished and lost sales under a tolerable 10% of their inventory value. But as we’ve seen several times already, cutting down on overstock still remains a big, stubborn challenge for many. Strategic stock that doesn’t move, whatever the reason, soon becomes redundant and turns into unwanted excess.
Overstocking vs. Understocking Behaviors
1 15% of SMBs - Not keeping up with demand or are facing significant supply chain disruptions.
2 20% of SMBs - These businesses have the wrong mix of inventory and excessive stock in the wrong locations - they face losing customers if fill rates remain low and they are unable to redistribute effectively.
3 30% of SMBs - Disciplined planning and inventory management.
4 35% of SMBs - Planning for excess inventory strategically, but run the risk of redundancy if stock isn’t moving.
Download Deep Dive Industry Insights
This report supplement provides deeper industry-specific details on:
- Lead Times
- Stock Turns
- Overstocking
- Understocking
Liquidating Dead Stock
While most excess can be accounted for or handled strategically, some just won’t sell for one reason or another: expired food or drugs with no reverse logistics program, outdated electronics, out-of-season fashion, damaged products or items without warranty, etc. This is dead stock, the biggest burden of any type of inventory.
When inventory won’t move and is no longer worth keeping, companies can choose to liquidate, or essentially remove and throw out, that pesky stock. Liquidation can be especially useful for retail companies that need to nimbly react to seasonal consumer behavior; however, only 39% respondents in retail use this method, revealing an open opportunity to explore it further.
V. The AI Revolution
The SMB Adoption Curve
AI continues to dominate headlines and show off its potential across industries, but many growing companies haven’t yet started their adoption journey. Only 23% of our survey respondents reported to have already invested in AI, and 26% plan to do so in the next 12 months. With AI becoming more accessible than ever, SMBs have a golden opportunity to ramp up adoption and capitalize on this transformative technology.
SMB AI Adoption
What exactly is holding SMBs back from investing in AI? Data integrity or security risks (23%) and inconsistent or inaccurate answers (20%) are the two biggest challenges our survey respondents experience with AI. In other words, adoption roadblocks are a matter of confidence in the technology rather than bureaucracy, such as securing stakeholder buy-in (8%) or prohibitive costs (just 4%).
Bringing AI to Inventory Management Software
SMBs should look to inventory management as a target for their next AI investment. Adoption may still be hitting its stride, but many businesses already see the upside for AI-powered software to optimize the movement and storage of goods.
When asked about the role AI can play in their organization, around half of respondents pointed to forecasting (52%), inventory optimization (48%), and demand planning (44%). A smaller minority (20%) sees supplier performance as an opportunity for AI. We expect all these numbers to grow as more businesses turn to AI-powered software to manage their inventory.
Potential AI Functionality for SMBs
Conclusion
The global supply chain is undergoing an exciting transformation, driven by the rapid advancement of technology and innovative inventory management solutions. However, companies face an increasingly complex supply chain ecosystem that requires agility, efficiency, visibility and precision to meet business goals and customer demands.
In this dynamic environment, integrating inventory management and supply chain technology is essential. Tech-forward tools, such as an inventory management solution, offer unprecedented capabilities for real-time data analysis, predictive analytics and automation, enabling businesses to optimize their inventory like never before. By leveraging these innovations, companies can enhance visibility, improve accuracy and reduce costs—all while responding swiftly to market changes and demands.