As discussed in the previous posts on effective inventory management (Step 1: Accuracy in Your Warehouse and Information Systems and Step 2: Optimizing Your Warehouse Floor), the key remains is the right inventory available for your customers when they need it – without stocking too much. In this blog, we discuss how partnering with suppliers has become even more important when managing inventory in the 21st century.
Supply chain gurus have promoted collaboration with suppliers to share in the benefits of optimization for years, but the 21st century has become more of a demand-driven economy that can be moved by a tweet or an opportunistic or happenstance product placement on a social media post.
Couple that with more goods coming from overseas, and the related lead time, and collaboration becomes increasingly important when the goal is to minimize inventory in stock without affecting your ability to meet customer demand.
Partnering with suppliers is not easy. Very rarely are your priorities the same as those of your suppliers and rarely does a small business owner have any power in a relationship with a larger supplier or manufacturer. The key, then, is aligning the benefits for you and your supplier in such a way as to create the win-win relationship.
Common examples include:
- Consolidated purchasing with a supplier for better terms, lower minimums, or better pricing.
- Supplier packaging and labeling in exchange for an exclusive contract for the branded line.
- Vendor-managed inventory in exchange for preferred marketing and committed marketing budget.
Some key points to consider in evaluating collaboration offerings:
Collaborate in areas of strength
Too often people seek to collaborate to cover weaknesses. If you can’t do something well, partnering with others will rarely make you better at it. Furthermore, you won’t have any leverage in negotiation.
Don’t make commitments you can’t guarantee
If you are in a demand-driven market, you can’t guarantee a purchase level. You can, however, make commitments for sole sourcing and a dedicated marketing budget to selling the product as part of a win-win formula.
Share the benefit and accept some risk
The deal should be equally beneficial for both parties. For example, if your supplier agrees to warehouse your goods and drop ship to customers in exchange for a preferred marketing arrangement, you will need to get them information in a format they can use in their systems and they will need a mechanism to receive those orders. These are costs for both parties, and you may need to share some benefits until you achieve a volume for them.
Select partners based upon capability, strategic goals, and potential
Bigger doesn’t always equal better; the biggest potential partner may not be the best partner for you. They may have more products and big potential, but a smaller partner may invest more time and effort with you. You may also find that a big partner wants to invest where they get the most value and not where you see your business going.
Invest in the right infrastructure
Just as you may need advanced inventory planning for your optimization efforts, being able to provide that information to your suppliers in or near real time may make the difference when creating that win-win deal. A single system that provides one version of the truth for your team can also be used to collaborate beyond your organization.
Establish a joint performance measurement and management system
After you make the deal, monitor and manage it! Pick the measurements that show the benefits and review them with your partner. Be prepared to adjust the deal based on the measurement to keep it mutually beneficial for the long term.
In summary, working with your suppliers can help you in many ways beyond the actual cost of the goods. Reducing your stock levels is only the most obvious of solutions, and you’ll be amazed at the variety of collaboration deals that exist when you start looking for them.
Collaboration keys are always:
- Make partnering mutually beneficial
- Make your collaboration strategic and based on the market (not your purchases)
- Put in the systems to manage, measure, and report on the benefits
Know that SAP Distribution.com has the tools and our staff has the expertise to help you optimize your inventory. For more information, contact us today.