3 Critical Benefits: How VMI Systems Cut Your OEM Manufacturing Costs

Posted by Craig Zoberis

Jun 10, 2014 4:22:00 PM

cut OEM manufacturing costsAre you currently grappling with the following contract manufacturing supply-chain problems?

  • A downturn in sales due to parts shortages or poor supplier delivery times
  • Excess or obsolete inventory sitting on your warehouse shelves
  • Inventory turns of 10 or less for essential product parts

Many companies like yours struggle with these issues due to globalization matched with an expansive economic downturn. This collective struggle on behalf of the supply-chain community has given way to a renewed interest in vendor-managed inventory (VMI).

VMI is a business model in which the original equipment manufacturer (OEM) of a product provides certain data to a contract manufacturer (CM) of that product. This flow of information makes it possible for the contract manufacturer to take full responsibility for maintaining an agreed inventory of the material – on both the OEM’s and contract manufacturer’s respective production floors.

VMI solutions are essentially an integrated approach where inventory at the OEM(downstream) is monitored and managed by the contract manufacturer (upstream).

As a symbiotic relationship, VMI makes it less likely that an OEM is unintentionally out of stock, and also reduces inventory in the supply chain. With the visibility VMI provides, the contract manufacturer is able to ensure the OEM has the required level of inventory by adjusting the demand and supply gaps.

The following three benefits of implementing VMI services all serve key criteria for cutting back your contract manufacturing costs, which greatly improves profit margins.

Benefit 1: VMI Services Increase Sales

VMI services give the contract manufacturer improved visibility into OEM product demand information. In turn, this empowers the contract manufacturer to reduce buffer stock. This transparency of stock levels helps identify priorities, such as replenishing stock before it runs out. With VMI, the OEM sees the potential need for an item before consumers order the item.

VMI services also allow for the contract manufacturer to have greater control managing a production schedule, which improves the utilization of production resources. When you achieve better in-stock availability of your products, this tends to increase overall sales for the OEM.

Benefit 2: VMI Services Strengthen The Customer Relationship

The right VMI solution is capable of helping the CM maintain high product availability, which means the OEM may improve customer service. Having the correct item in stock when the customer needs it ultimately benefits all parties involved.

Also, because of the streamlined, transparent process VMI establishes, a true partnership is formed between the OEM and the CM. They work together closely, which strengthens communication and aids in achieving contract manufacturing end goals more easily.

Benefit 3: VMI Services Reduce OEM Admin And Operating Costs

Another way VMI boosts your bottom line is by eliminating clerical tasks – such as discrete purchase order execution – for the OEM. Also, VMI services help to reduce the OEM’s ordering errors, poor customer order habits and product returns.

VMI’s use of common data and more frequent and meaningful information exchanges eliminate many administrative and operating costs.

VMI helps your supply chain become streamlined through airtight integration and information transparency between the OEM and the CM. With the right VMI solution, your OEM is able to increase sales, achieve long-lasting customer relationships and cut your overall contract manufacturing costs considerably.

Ready to learn more about finding the right vendor-managed inventory service for your OEM? Call me, Craig Zoberis, 630-323-4115 or click on the button below to speak with a contract-manufacturing expert at Fusion OEM.

Discover My Contract Manufacturing Solutions 

Topics: contract manufacturer, VMI, oem, vmi services, vendor managed inventory, original equipment manufacturer, vmi solutions, contract manufacturing

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