Being a successful manufacturer requires you to concentrate on what you do best. Among many factors, OEMs (original equipment manufacturers) need to be focussed on developing and refining their products, innovating features that allow them to stand out against the competition, and relentlessly pursuing increased customer satisfaction.
Dealing with complex supply chains, detailed inventory management, and a complex web of supplier relationships can soon divert from these core goals and the competencies of your business. But they need just as much attention if production is to run seamlessly in a smooth, efficient and cost-effective manner.
VMI (vendor managed inventory) is a tried and tested strategy to confront this challenge, but many companies still persist in diverting managerial and administrative resources to the management of multiple supplier relationships and sourcing of SKUs. Much of the confusion may arise from a lack of definition and understanding of this supply chain strategy.
At a fundamental level VMI is an inventory management, product supply and replenishment arrangement whereby your VMI partner utilises their logistics expertise to fulfil these, and collaborate with the manufacturer on a lean supply chain solution.
A study by De Toni and Zamolo found VMI reduces the storage space of an entire supply chain by 30% while also cutting supply chain costs considerably. A lean inventory ideally requires realtime replenishment from a VMI partner that can manage many suppliers, and so ensure no stock-outs. Electronic Data Interchange (EDI) between client and VMI partner allows just-in-time delivery and demand planning to be managed with multiple vendors (at the upstream end of the supply chain).
The bane of any manufacturer — line-downs — are also consigned to history, with VMI inducing a reduction of supply base and a shortening of the supply chain. Joining up these links adds resilience and unlocks growth through management of short term volatility, accelerating time-to-market, and reducing supply complexity to drive competitiveness.
VMI is evolving into the ‘agile supply chain’ due to the increasing digitisation of all manufacturing process, automation of warehousing, IoT (Internet of Things) traceability, and realtime end-to-end data collection. The Fourth Industrial Revolution is happening now. Finally within the reach of most businesses, VMI allows you to plug into it.
— Chris Till is Managing Director of Acorn Industrial Components, specialists in supply chain logistics.
[Originally published in PECM magazine, Issue 25]
You can find out more about our VMI services here.