MORE local companies are sounding the alarm about their struggles with adjusting inventory levels in the post-pandemic period.

A year ago, the hot topic among local manufacturers and distributors was around severe supply chain issues, a dilemma that forced most companies to boost inventory to be ready for any eventuality. But the pendulum has since shifted, and today more and more companies are pressured to reduce inventory as consumer demand normalises from the boom experienced during COVID-19.

In extreme cases, the ongoing destocking or inventory reductions trend has caused companies like Medical Disposables and Supply (MDS) to take heavy hits on its sales margins.

“Our gross profit margin for the second quarter was down $32 million compared to the similar period of 2022 when we reduced our prices. We had to move on that decision to protect our market share as well as to keep cash flowing into the company,” CEO of MDS Kurt Boothe told the Jamaica Observer.

Other companies have had to revise their sales forecast downward up to mid-2024, while a few are still in wait-and-see mode, owing to lengthy delays in supplies being shipped through the Panama Canal due to a drastic decline in water levels, as well as an expected rise in demand for some consumer items over the festive season.

The inventory debacle dates back to 2020 during the height of the COVID-19 pandemic which caused a total lockdown of many manufacturing businesses that eventually led to supply shortages. High demand items such as hospital gowns, gloves, surgical masks, and respirators were some of the first to go into short supply, causing panic among policymakers globally. At the time, China increased imports and decreased exports of personal protective equipment, removing supplies from world markets.

With the lockdown came higher demand for consumption goods during the pandemic, but industrial production did not adjust quickly enough to meet the sharp increase in demand. Effectively, most companies were left with no choice but to increase inventory items to keep supply intact. That issue was later compounded by a shortage of shipping containers and exorbitant shipping rates.

“During COVID the priority was to have inventory. There are some categories of business like say furniture and appliances, they were just booming. But then COVID stopped, and consumer demand normalised and now they are left with a tonne of inventory. So now they are destocking, meaning they’re selling and getting everything off the shelves,” CEO of Seprod Richard Pandohie said.

“It’s the same for the food industry, no matter what it took, we had to get the raw material and that took up a lot of working capital expenses. But now that kind of demand that we saw for food items has slowed and we are just trying to normalise our inventory levels to free up the cash that is tied to those goods,” he explained.

Pandohie said that some retailers saw the Black Friday sales weekend as the perfect opportunity to offload some of the excess inventory. Over the four-day sale weekend, retailers across almost every sector in Jamaica were offering discounts between 30 to 70 per cent to woo consumers to their stores.

The sales strategy had some amount of impact on consumer spending, as electronic transaction volumes on Black Friday rose to $2.6 billion to hit a record high over the course of 2023, according to JETS Limited, which is an electronic banking service company operating Jamaica’s national debit card network that trades as MultiLink.

A similar strategy was being used by manufacturing companies.

“This year we spent a lot of effort on getting rid of stocks, sometimes utilising the price that we purchased the goods at because we just needed to get rid of it,” Pandohie said. Seprod, one of Jamaica’s largest manufacturers and distributors, sells products under the brands Serge, Supligen, Betty, Gold Seal Chubby, Kraft, and Chiffon.

The challenges around excess inventory is not unique to Jamaica.

British multinational alcoholic beverage company Diageo recently issued a profit warning on the back of falling sales in Latin America. It caused the company’s share price to fall 15 per cent the following day.

Local beverage company Wisynco Group is on the opposite end of the inventory debacle as demand for its products typically rises during the winter season, but Mark Hart, chairman of Caribbean Producers Jamaica (CPJ), which specialises in supplying goods including liquors to hotels and supermarkets, says the company has been facing pockets of pressure from glut inventory.

Still CPJ is in no rush to take corrective actions.

“The are issues with the Panama Canal as well as we have to be mindful of the conflicts happening around the globe,” he said.

Hart, however, is a bit concerned about a slower start to the winter season than projections made by the company.

“We saw a little bit of softening leading into the winter season, not in a material way but let’s just say we thought things would be a bit stronger, but we still are anticipating increased activity going into the season,” Hart told the Caribbean Business Report.

In the medical supplies industry, demand is relatively constant and as such Boothe from listed company MDS has been exploring different options to normalise inventory levels while maintaining revenue numbers to keep stakeholders happy. It’s a delicate dance for the CEO.

“What we have found is that there are other competitors who have overstocked as well and have engaged in significant price reductions. In certain areas we’ve even had to compete with informal traders. And so, it’s reflected in our results that we had to take a lot of hits in margins which is ultimately affecting our bottom line,” Boothe said.

But MDS is exploring ways to pivot and so far, has settled on expanding its product portfolio to supply more technical items. The strategy is largely aimed at regaining market share lost to informal traders that entered the market during the heights of COVID-19 with high demand and easy disposable items such as masks and gloves.

“We are moving into areas that have higher barriers to entry and less competition. We are looking at diagnostics and oncology equipment, for example,” Boothe said.

Still, Boothe says the company will continue to engage in some amount of destocking over the short term and does not anticipate a normalisation in inventory levels at least until mid-2024.