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Lowering Vendor Managed Inventory Costs | Efficiency Focused Solutions

Lowering Vendor Managed Inventory Costs

One of the surest ways to reduce your company’s inventory costs is to use a vendor managed inventory agreement. Success or failure with these agreements is dependent upon strong cohesion between your purchasing department and its vendor base. Delays are commonplace and manageable, but inaccurate information is much more costly and far more damaging. As such, many of today’s enterprises are upgrading their enterprise mobility network with rugged handheld computers, and they’re giving these computers to a purchasing department that must manage an ever-expanding vendor base.

These rugged mobile computers not only allow procurement professionals to better coordinate incoming shipments, but they empower them to improve how their vendor managed inventory agreements are structured. Now, the question you must answer is how do your current manual processes compare? More importantly, could your manual processes ever duplicate the accuracy of a mobile device? To answer both of these questions, we’ll review the fundamentals of a vendor managed inventory agreement. Next, we’ll outline why your manual processes will never allow your company to achieve significant inventory cost reductions.

Benefiting From Vendor Managed Inventory Agreements

A vendor managed inventory agreement allows your vendor to become a proactive participant in lowering your company’s inventory carrying charges. The first type of agreement includes your vendor holding a portion of your company’s inventory at their location. Your company decides how much is shipped and when, based on a forecast provided to your vendor. You only take what you need in the month you need it. Another version of vendor managed inventory is called a consignment inventory agreement. With this type of agreement, your vendor ships one large sum of finished product to your location, well in advance of any future requirement. Your company is only invoiced for what it uses in the month it uses it. This type of agreement reduces your incoming freight costs because you’re only concerned with the invoice for the current month’s usage. Both of these types of agreements reduce your carrying charges, while giving your vendor the piece of mind that comes from consistent business volumes.

Enterprise Mobility Solutions Are Essential

Success with these aforementioned agreements requires that information transfer is immediate and most importantly, accurate. Your company’s enterprise mobility platform will integrate your entire operations into one cohesive unit. Changes to any individual sales forecast will immediately be captured as an incoming requirement, allowing your purchasing department to immediately reconcile inventory and account for any shortfall on volumes. Your purchasing department will immediately be notified of the change in demand via their rugged handheld computers. In turn, they can then schedule an immediate delivery from the vendor. This can be done whether they’re in, or out of the office, whether they’re walking the shop floor, or in a meeting, or whether they’re in the warehouse itself. Simply put, your purchasing department is immediately notified of the pending volumes. It’s this speed that makes a difference. Your purchasing department can immediately match new demand and notify your vendor of future volume requirements. In turn, your vendor will prepare the next batch, thereby allowing your company to immediately respond to your own customer’s needs. Now, does this entire situation help your company better service your customer base? Absolutely! Will it help you beat your competition and distinguish your company’s service capabilities? Most definitely!

The Accuracy of Mobile Devices

It’s this accuracy that helps reduce costs and it’s something your manual processes can never duplicate. In fact, your manual processes will always be days, or even weeks behind. By the time your purchasing department is aware of the increase in customer demand, it will likely be too late. More importantly, as that information moves through your organization, it moves from one manual process to another, processes that increase the inaccuracies until all you’re left with is an upset customer. In essence, it’s the quintessential broken telephone, except in this case it’s not a game; it’s your customer’s business and your company’s future volumes that are at stake.

One of the biggest cost drivers of inventory is a company’s cost of freight. Now, most assume these costs are relegated to fuel surcharges. However, a company’s high freight costs are also driven by not having the right amount of inventory, and then being forced to rush parts in to meet current demand. Another cost driver includes the costs of losing customers because of inaccurate inventory counts. Both of these cost drivers are made worse when companies rely upon manual processes, but they are ones your company can do away with entirely once it upgrades its purchasing department with rugged handheld computers. That decision alone will improve how your company manages its vendor managed inventory agreements, and it will go a long way to improving your overall cost structure.

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