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5 Ways A Vendor Managed Inventory Can Improve Your Company's Sustainability

vendor managed inventory sustainabilityCurrent economic uncertainties have produced instability for manufacturers. Dwindling demand at the retail level affects production and distribution output, which can lead to excessive amounts of finished product inventory that is liable to obsolescence and shrinkage wastes, especially if your manufacturing facility generates high-tech or high-end products. Wastes such as these, combined with fluctuating or intermittent demand produce a marketplace volatility that is detrimental to company profits, longevity, and success. 

Therefore, implementing lean manufacturing principles designed to eliminate inefficiencies in production, while reducing operational and inventory costs with a customizable vendor managed inventory program, can improve your company’s sustainability and help you maintain balance in the ever-changing, and often turbulent economic environment. 

Reducing Administrative Costs 

Although the planning, counting, and reconciliation duties required to reach targeted production goals is relative to the size of your specific manufacturing operation, the administrative labor costs incurred are woefully disproportionate to the benefits ensued, and contribute to inventory soft costs. Particularly so, if manual data entry procedures are employed to transfer inventory counts, issue purchase orders, and manage the chain of supply. 

A collaborative partnership, vendor managed inventory programs utilize computerized connections to transfer the majority of these repetitive tasks to the supplier, who is able to effectively control inventory levels and replenishment schedules with superior results, saving significant labor costs. 

Shifting the Paradigm 

Instead of operating from a “push” system, where production schedules are established according to intricate forecasts, vendor managed inventory programs implement lean manufacturing strategies. Production signals occur at the end of the line, from actual demand. A simplified definition of the concept being, “sell one, make one”. 

The revolutionary idea was developed by leaders in the automotive industry as a means of eliminating wastes and streamlining production. Its practical results have sustained companies like Toyota through numerous economic adjustments. 

Lowering Inventory Levels and Expense 

Since inventory levels represent such a large portion of company assets, lowering the amount of stocked materials allows manufacturers to retain more of their own working capital. In addition, consumable inventory items such as fasteners, adhesives, and packaging materials have actual and indirect expenses associated with them, affecting the cost of production and ultimately, the price of the final product. 

Vendor managed inventory programs effectively eliminate the soft costs incurred per item by reducing administrative costs and coordinating delivery at the point of assembly, removing overstock that is susceptible to shrinkage, and stock-out occurrences that contribute to costly line down situations and expensive rush order shipments. 

By streamlining replenishment procedures, overall production costs decrease, allowing manufacturers to sustain operations during periods of market instability. 

Stabilizing and Ensuring Parts Pricing and Availability 

The heightened and effective communication produced by vendor managed inventory programs allows your supplier to alter his own stock amounts to ensure your parts delivery. Imagine never having a production halt or having to explain distribution delays because of the absence of one crucial component. 

Stabilized ordering procedures and controlled shipments also affect your supplier’s operational costs, subsequently allowing you and your supplier to negotiate and establish fixed prices that prevent your having to absorb unanticipated rises in item costs. 

Improving Customer Service 

Your level of customer satisfaction has a significant impact on company sustainability. With the combined advantages and improvements generated by vendor managed inventory systems, you in turn, are able to better serve your end customers. Superior stock monitoring, tracking, and visibility provides you with the ability to seamlessly adjust to increases demand, and establishes your company as a reliable source. 

The lean techniques and methods employed in a customized vendor managed inventory program offer practical answers for an effective company sustainability strategy. 
Photo credit: photologue_np via Flickr


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