Written by Paul Przyby
SVP, Sales and Marketing — Optimas Solutions
Vendor-managed inventory (VMI), or inventory management, has been around since the ’80s when companies such as Walmart used it to revolutionize their supply chains. In the 30-plus years since then, inventory management has evolved to become more sophisticated and accessible, allowing companies of all sizes to benefit.
Conventional inventory management systems track when parts are ordered, delivered, stored, and replenished. With today’s tech advances in the Internet of Things (IoT) and artificial intelligence (AI) — which can work together to collect, manage, analyze, and learn from data — it’s possible to expect more from a program than just “managed parts.”
An optimized and automated end-to-end inventory management program will continually work to innovate and improve the entire supply chain management cycle.
Understanding inventory management
In simple terms, VMI employs a partner (think full-service distributor) to manage inventory. The resource develops a custom program to ensure the right parts go to the right places at the right times.
However, a modern inventory management program does more than manage parts. Ideally, it’s capable of:
• Understanding and adapting to changes in demand
• Ensuring quality requirements are always met
• Establishing and managing efficient delivery logistics
• Leveraging technology to automate replenishment
• Offering visibility into consumption patterns, inventory quantities, and locations
• Providing data to optimize quantity and delivery decisions
Such tech-enabled functionality streamlines supply chains, elevating productivity and profitability.
One study found that most companies devote 20 to 40% of their overall working capital to inventory alone. Hard and soft costs can be saved with an advanced inventory management program. Additionally, workflow and productivity can be redefined, and human resources reallocated from slow, repetitive, and error-prone work to higher-value (i.e., profitable) activities.
The key to such advanced features: going digital.
The digital revolution
It’s no secret that familiarity breeds comfort. Most of us stick to routines because it feels safe and secure. Although there is something to be said for a legacy business, success is rarely granted to those who refuse to evolve. Optimizing routines and process is particularly critical and easier in the digital era.
Digitized inventory management is the next level of VMI. Such automated programs ensure accurate and current inventory numbers, meaning an organization is less vulnerable to errors from human calculations or multiple data sources.
Digital inventory management now offers AI features that can forecast demand changes and adapt stock levels for more accurate supply chain planning of engineered fasteners and C-Class parts — ultimately leading to cost savings and a more secure supply chain.
So, what does modern inventory management offer that makes it worth the switch? Here are just a few benefits of going digital…
• The ability to work smarter, not harder. Thanks to the analytic technology available today, it’s possible to capture and use data and modeling based on an organization’s real-time and historical consumption patterns. Quality forecasting uses a mix of quantitative (such as past numerical insights and current market demand) and qualitative data (market trends, product lifecycle, competitive landscape, etc.) to guide more accurate inventory management decisions.
Additionally, by integrating RFID technology to manually or automatically submit replenishment orders, inventory can be monitored in real-time. (RFID or Radio Frequency Identification uses radio waves to identify a tagged object.) Data can be used to create more accurate forecasts about future demands. As a result, it’s easy to modify production plans and inventory levels. Plus, cash flow benefits from this level of accuracy.
• A supplier reduction, also known as vendor consolidation, moderates the number of suppliers within a specific supply market to save costs. Some experts suggest adding just 10 extra suppliers every five years is more than $1 million in additional soft costs. The parts make up only 15% of those costs, while the human resources required to select, manage, and process those suppliers is another 85%. A digital VMI program can make a big impact here.
• A refocused workforce typically leads to greater productivity overall. Thanks to an automated replenishment system, it takes less time, personnel, and processes to maintain accurate inventory levels. These productivity gains drive soft cost reduction and offer an opportunity to reallocate team members to roles that ensure a greater impact on production.
Digitized inventory management can make supply chains more efficient and resilient to disruptions, offer higher visibility of parts’ consumption, improve forecasting, and support the reallocation of resources to ensure better productivity. It’s about spotting potential issues before they start.
Would your organization benefit from digital inventory management?
The first step is identifying core pain points a digitized system can help resolve. Here are the top five questions to ask to get started:
• On a scale of 1-10 (with 10 being the best), how accurate are your part counts?
• How long does it take to go from count to replenishment?
• Have stockouts occurred in the last 12 months?
• Has excess and obsolete inventory negatively impacted your company’s balance sheet in the last two to three years?
• Is your current supplier doing anything to support your inventory management process?
The answers to these questions can indicate the need for an inventory management solution.