There’s no doubt that a vendor managed inventory (VMI) system helps a contract manufacturer build a stronger bond with an Original Equipment Manufacturer (OEM). After all, any lean initiative to build a demand-driven supply chain is certain to reduce a contract manufacturer’s overhead costs.
But what about the OEM? How does it benefit from a vendor managed inventory system? Here are five ways a VMI helps you, as an OEM, better run your business and boost your bottom line:
1. Lower Overall Inventory Cost
Holding and managing excess inventory is a significant expense for your business. When you outsource your inventory management, your business sheds these unnecessary expenses and your budget is freed up for better investments.
Also, since vendor managed inventory allows you to place larger bulk orders, you save more money than placing several smaller, discrete orders.
2. Reduced Manufacturing Footprint
Having extra inventory on hand takes up valuable floor and shelf space in your production facility. Not only is this stuffed space costing you in terms of overhead, but it’s also a major opportunity cost: You could be using that space for other profitable manufacturing activities.
And even though your inventory isn’t stored in-house, vendor managed inventory ensures that you still have it readily available from your private label manufacturer.
3. Lower Administrative Costs
When it comes to OEM manufacturing, you’d rather be spending your time on production and marketing than administrative hassles and follow-up with your outsourced manufacturing partner. A VMI system means you spend less time and effort on discrete orders and maintaining purchase information.
Vendor managed inventory also means fewer rush orders and fewer reconciling headaches between purchase orders and incorrect inventory – issues that any OEM would be glad to eliminate.
4. Increased Information Flow
VMI systems require greater communication between OEMs and their contract manufacturer, but this increase in information flow means a more in-depth partnership between the two companies. With more visibility into your product demand, your contract manufacturer is able to meet your needs proactively and work in tandem with you to solve any crises.
Better information also means the contract manufacturer is able to tool up and manage their workforce more effectively, which ultimately saves you on product costs.
5. Increased Customer Loyalty
When you’re out of stock or late on an order, you disappoint your customers. However, with a vendor managed inventory system, you have less stock-outs because your main supplier has full visibility into your product demand.
More accurate insight into product launches, lead time and product revisions means your private label manufacturer almost always recognizes the need to replenish your inventory well before stock runs out. In turn, your customers appreciate getting their products on time, every time.
The difference is clear: With vendor managed inventory, your OEM is positioned for better manufacturing opportunities without being tied down over inventory space or costs. Once you shed the expenses and hassles of in-house inventory, you have more time and money to develop new products and grow your OEM.
Interested in making more by doing less? Click below to watch this on-demand webinar from Fusion OEM and learn how to liberate your in-house production from the 80% of products that are only returning 20% of your revenue or call me, Craig Zoberis, at 630-948-4879.