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The manufacturing industry is facing some complex challenges in the new year. From dealing with increasing SKUs and product complexity to figuring out how to best embrace digital transformation, manufacturers have their work cut out for them.
As the Deloitte Research Center for Energy & Industrials puts it, “in 2024, manufacturers are expected to face economic uncertainty, the ongoing shortage of skilled labor, some lingering and targeted supply chain disruptions, and new challenges spurred by the need for product innovation to meet company-set net-zero emissions goals.”
For the past three years, the industry has been in emergency-response mode, but as we head into 2024, we’re seeing many manufacturing companies make strategic efforts to rebalance their business. More specifically, they are taking a step back to answer the following questions:
- Do we have the right resources in the right place?
- Are there areas where we could be buying better?
- How can we increase operational throughput?
- How can we improve forecasting based on both historical patterns and future demand expectations?
Inventory management is an ongoing challenge, and keeping track of Class-C parts can be particularly draining. Fasteners represent a large number of inexpensive SKUs, and many OEMs will spend too much time managing them when they should be focused on more complex, high-value parts that require more oversight.
To mitigate this, many manufacturers will implement Vendor Managed Inventory, or VMI. VMI is an inventory management practice in which the supplier of parts is responsible for managing and optimizing inventory levels for their manufacturer customer. VMI works well for Class-C components, as it eliminates stockouts, keeps production lines moving, and enables OEMs to spend more time on needle-moving objectives.
But some manufacturers have tried VMI programs only to abandon them due to communication gaps, service failures, or apathetic account reps.
Assessing Your Traditional VMI Strategy
In a traditional VMI arrangement, the supplier will send a representative to the manufacturer’s facility to audit stock quantities and create orders. This traditional on-site bin stocking process has the potential to greatly improve throughput, but it comes with some risks and high overhead costs.
Benefits of Traditional VMI:
- Improves customer and vendor collaboration
- Improves efficiency
- Reduces complexity
- Reduces costs
Limitations of Traditional VMI:
- Lack of control since bin stocking reps are not your employees
- Risk of reps overfilling bins and overcharging the manufacturer
- Risk of reps not showing up when they are needed
- Risk of reps placing the wrong product in the wrong bin
- Reps may not inherently understand when demand spikes are coming
- High overhead costs
- Variability by location
- Risk of human error since inventory often tracked via pen and paper
Virtual VMI gives you more control and cost savings
Virtual VMI is an evolution of traditional VMI. It’s an asset-light, machine-driven solution in which the supplier manages and optimizes inventory, while the manufacturer uses their own employees to scan and handle the physical bins.
With this solution, OEMs get the data insights and efficiencies of traditional VMI without giving up control, and over time (and scale) may achieve even greater cost savings.
Virtual VMI offers the same benefits as traditional VMI, with additional advantages such as:
- Further cost reduction:
- Asset-light means less overhead
- OEMs are charged for parts only
- Ability to aggregate locations
- More control since you have the power to fill your own bins
- More data capture for accurate demand planning
- Machine-driven to reduce error
- Saves time on reordering through quick scanning
- Unlimited capacity and scale
If you’re looking to improve inventory management without giving up control, consider Blue Ribbon Fastener’s Virtual VMI solution. We’ll deliver a tech-forward solution that’s customized to your needs. Get in touch with us today to learn more.