Importance of Supplier Managed Inventory - Cass Precision Machining Importance of Supplier Managed Inventory - Cass Precision Machining

Importance of Supplier Managed Inventory

As the business world continues to recalibrate itself in a myriad of ways due to the global pandemic, one factor that became obviously clear in the manufacturing sector is the importance of supplier managed inventory. Supply chain issues arose like never before and forced organizations to assess and improve the resilience of their supply chains without weakening their competitiveness.

The great lesson learned by many organizations was the need to build greater flexibility into their supply chain design process through innovation and implementing new technology. The pandemic accelerated and magnified problems that already existed in the supply chain. The bottom line is that manufacturing firms need to make their supply chains more resilient, collaborative and networked.

Managing inventory at the enterprise level is a continuous battle. Demand projections and fluctuating costs make it a very difficult task, but strategic integrations between vendors and consumers can reduce friction.

An Ernst & Young research study from 2020 found that 60% of executives say the pandemic has increased their supply chain’s strategic importance. Looking forward, multiple disruptions are happening more quickly and factors such geopolitical risks, cyber threats, and economic instability are continuing to put pressure on supply chains. Moving forward, the supply chain will need to be agile, flexible, efficient, resilient, and digitally networked for improved visibility.

Many in the manufacturing industry are hoping that the pandemic was a once in a lifetime occurrence. But as the saying goes, “hope is not a strategy”. At Cass Precision Machining we believe strongly in the benefits of supplier managed inventory. Coming out of the pandemic we are partnering with more and more customers in trying to find ways to mitigate risk.

We would love to have an infinite amount of inventory to always be able to quickly turn orders for all of our customers, but that’s obviously not realistic. In order to better serve customers, many manufacturers now offer different ways to enter into a supplier managed inventory agreement.

There are many benefits to inventory management agreements – lower costs, fewer stockouts, less waste, higher inventory turnover and better forecasting.

  • Reduced Costs – Better inventory management allows you to have less inventory on hand. Less inventory leads to less waste and obsolescence and fewer resources needed to manage that inventory. Being able to place a single PO with your supplier partner allows you to lower your hidden soft costs that can add up in a hurry with multiple orders for a lot of different parts.
  • Improved Workflow and Productivity – Inventory management on its own cannot promise increased productivity for your organization, but the improved workflow should certainly provide a boost. A good relationship with your inventory supply partner will help you assess your current workflow from receiving to routing to replenishment, and find ways to remove steps and save money.
  • Less Resources Dedicated to Inventory – If you have limited storage or staff, letting suppliers handle inventory is one way to avoid spending extra money.
  • Reduced Stockouts or Errors – Stockouts can have a detrimental impact on the reputation of a business. With a supplier agreement, stock levels can automatically be replenished from the supplier ahead of time.
  • Provides Time to Focus on Sales – Instead of dedicating limited resources to inventory management, your team can focus on sales.
  • Smooth Supply Chain – An inventory management agreement with your supplier is a great opportunity for a secure and synergized partnership between the supplier and customers.

At Cass we provide different options for entering into a supplier managed inventory agreement, each of which provides greater flexibility for our partners, the best use of machine time at Cass, and the best cost for our customers.

Supplier Managed Inventory

Partnering with your supplier on a managed inventory process is a great way to stay nimble in your processes in case another supply chain disruption occurs. It can help to reduce process roadblocks and align supplier and customer inventory demands.

Supplier managed inventory helps reduce your safety stock and lower your inventory levels by ensuring you receive your products before you need them, but not too early. With SMI you can better interpret your inventory and how it holds up under customer demand. It can measure how quickly you sell a product and ship out replacements before you run out. If managed correctly, you should always have the necessary inventory to meet demand.

With your supplier controlling the inventory, they are able to achieve significant efficiencies. The ordering process is typically based on more accurate and up-to-date data, which allows for cost savings by reducing the frequency of costly last-minute orders, reducing the number of orders, and reducing returns.

Supplier managed inventory also can help take the supplier’s data analytics to new levels of sophistication that helps its entire operation. The benefits go beyond the warehouse too—a better understanding of actual demand helps sales managers improve performance and develop strong relationships with customers.

An effective supplier managed inventory program develops through cooperation between both sides and to the benefit of both sides. Suppliers who adopt an inventory program find that it enhances their relationships with customers, who gain a significant competitive advantage thanks to superior service and on-time delivery that supplier managed inventory enables.

As suppliers develop a better understanding of customer demand through its SMI process, it becomes a better partner to its customers and is more likely to see increased sales. Greater transparency and communication with the customer allow the supplier to better respond to its customers’ conditions and future plans, ultimately helping customers and suppliers alike grow in more efficient and predictable ways.

For more information on Cass Precision Machining’s supplier managed inventory program, get in touch with us here.