In some industries, the practice of hoarding goods is very common, which artificially exacerbates the volatility of demand and causes many inventory and production capacity problems.

With such volatile demand, supply chain can’t expand production capacity as quickly. We can only cope by producing inventory during the “off-season.” Some of this inventory is turnover inventory, produced in advance based on forecasts to cope with normal turnover; the rest is safety stock, set aside to account for demand uncertainty. Regardless of the type of inventory, the overall inventory amount is higher, and as product designs and customer demands change, the risk of obsolete products is high.

There are profound reasons for channel backlog. The first is performance appraisals . Month-end, quarter-end, and year-end sales surges closely align with corresponding performance milestones. The second is product competitiveness . The weaker the product’s competitiveness, the greater the sales pressure: if we take the channel’s money before the actual deal is done, what if they refuse to purchase our product later? As a result, powerful customers like major accounts are difficult to persuade, and instead use sales appraisals to demand higher revenue to bargain. Weaker customers like distributors, on the other hand, become the hardest hit by pressure, leading to high inventory levels across the supply chain.

From a sales perspective, we can reduce the phenomenon of overstocking and control the demand fluctuations caused by overstocking by refining sales assessments and increasing the density of assessments .

For example, one company conducts monthly rather than quarterly sales targets. These monthly assessments aren’t a one-time effort, but rather three phases: salespeople are required to secure 60% of the following month’s orders by the end of the previous month, 70-80% by the 10th of the current month, and 100% by the 20th of the current month. Orders must also be received seven days in advance. With this level of assessment frequency, salespeople are essentially “stockpiling” inventory daily, naturally leading to a more stable demand. This makes sense: salespeople’s job is to sell products, so they should be promoting them daily. It doesn’t make sense to concentrate on just one sales session at the end of the month or quarter.

This is a simple logic, so why don’t so many companies increase the frequency of performance reviews? This is primarily because increasing performance reviews places high demands on a company’s management. For example, a low level of information technology prevents timely data aggregation and thus makes frequent performance reviews impossible. Anyone who has given bonuses to employees will agree: keeping track of all those accounts is incredibly challenging. In a poorly managed restaurant business with a multi-billion dollar business (its complexity is likely no less complex than that of a manufacturing industry operating in the tens of billions), even vice presidents lack KPIs—the lack of information technology makes it impossible to calculate the accounts.

From the perspective of the supply chain, we can also take a series of measures. Here are three points. None of them are perfect, but they are helpful.

1. Monitor actual sales . Sales evaluation isn’t based on sales to channels, but rather on sales to consumers and end customers. This is relatively straightforward for the mobile phone industry, as manufacturers know the status of a phone once it’s activated. However, it’s more challenging for many other industries. In a multi-supply chain environment, maintaining accurate and timely sales and inventory information presents challenges. Some companies with strong management capabilities are driving their channels to use the same information systems, attempting to streamline information flows. For example, one engineering equipment company has been able to monitor channel inventory with considerable accuracy since 2015. With increasing levels of informatization, I believe more companies will be able to achieve this.

2. Monitor channel inventory levels . While it’s acceptable to overstock inventory, channel inventory must not exceed a certain limit, such as 60 days of sales. In other words, brands are monitoring channel inventory. The challenge, however, is that without a robust information system, obtaining timely and reliable information about channel inventory across so many channels and products is extremely difficult. Channels may falsify inventory figures for commercial reasons, such as sales rebates, or under pressure or inducement from sales representatives, further complicating the issue.

3. Sales stays out of order management . Sales focuses on signing contracts and gaining market share, leaving order management purely to supply chain operations. We’ve seen this approach in some industrial product companies. This may be due to the high level of professionalism and customer loyalty in the industrial product environment: once a contract is signed, subsequent orders are secured. Of course, this approach may not be applicable when customers source from multiple locations, especially when product advantages are less clear and sales “touch and go” is constantly needed.

Channels may falsify inventory figures for commercial reasons, such as sales rebates, or under pressure or inducement from sales representatives, further complicating the issue. Sales stays out of order management. Sales focuses on signing contracts and gaining market share, leaving order management purely to supply chain operations. We’ve seen this approach in some industrial product companies. This may be due to the high level of professionalism and customer loyalty in the industrial product environment: once a contract is signed, subsequent orders are secured. Of course, this approach may not be applicable when customers source from multiple locations, especially when product advantages are less clear and sales “touch and go” is constantly needed.