The True Value Of Vendor Managed Inventory
RG Group can help your business be more cost-effective by developing a program that helps drive down overall expenditures.
By consolidating the time and cost for your in-house inventory management, including personnel, number of stocking locations and all the time involved in handling stock, we can become more than just a distributor, we become a partner in successfully maintaining your inventory.
What Is Vendor Managed Inventory?
Vendor managed inventory is a great supply chain management strategy in which we as a supplier manage products that are located in your warehouse or plant. We offer programs where the goods are either consigned or non-consigned and kept in-stock at your location. Typically the consigned stock is owned by us until you as the customer consumes it, and the non-consigned stock is owned by you when you receive it… but it’s our job to keep tabs on the inventory levels so you never run out.
Vendor Managed Inventory (VMI) programs result in reduced administrative and operating costs due to fewer order problems caused by bad data, fewer emergency orders due to stock-outs, a more consistent order process which typically lowers total order count by 4% – 6%, fewer returns of “dead” inventory created by lack of collaboration on product replacements and reduced transportation costs due to fewer emergency orders and the ability to recognize order consolidation opportunities.
We take on the responsibility for replenishing stock, which would include ordering the inventory, managing the logistics to ship the material and counting the inventory.
By having the inventory onsite or near, you are able to pull inventory quickly and efficiently based on production needs, effectively reducing the lead-time to next to nothing.
VMI removes variability from the delivery process by putting the responsibility on us, allowing you to improve the accuracy of your inventory.
Lean Thinking And Vendor Managed Inventory Programs
In 2011 Tim Cook, Apple™ CEO , called inventory “fundamentally evil.” How can inventory be evil?
Isn’t raw material inventory necessary to manufacture products? Shouldn’t there be some finished product on the shelf to fulfill orders? Perhaps what he meant was excess inventory or inventory that is not being converted to cash in a very short amount of time can be toxic or evil.
When a manufacturer has excess inventory not adding value to the process, the inventory is hurting the company’s balance sheet, and is by definition wasteful. Having excess physical inventory on hand increases the need for expensive warehousing space, not to mention the risk of obsolescence. All of these carrying costs put the enterprise at a financial risk.
Instead of the inventory being an investment, its value depreciates upon receipt from the supplier. Having the bare minimum amount of inventory to sustain production is the delicate balance of supply chain management.
Procuring and managing the exact amount of inventory needed for a flexible and ever-changing production schedule is a complicated and labor intensive process. If you consider, for example, the bill of materials for a large OEM, this is multiplied times thousands of items down to the smallest nut or bolt.
Achieving a lean inventory is an important part of maintaining a healthy business. VMI is not a one-size-fits-all system but highly adaptable for many different requirements.
Utilizing a well-implemented VMI system will not only improve your balance sheet but will also cut many other wastes out of the overall process and put you on your way to having a lean inventory.