Considerations in Supplier Consolidation and Single Sourcing
Local Direct Supply Programs and How They Can Help Your Organization
Few things give more heartburn to a supply chain manager than unreliable logistics for critical parts. The parts may be packaged and ready to go at the supplier’s facility, but if they can’t make it to your facility on time it’s as if they were never completed at all.
Is there a disconnect between your supplier’s delivery and inventory systems and your needs? Disconnects can lead to missed shipments and lost business, and even when the parts do arrive uncertainty about that arrival can lead to tension throughout the plant. In the words of the great philosopher Bugs Bunny, “It’s the suspense that gets me.”
A local direct supply program tailored to your logistical needs can take out the suspense, and allow you to focus on more important things than multiple sets of contingency plans to deal with missing parts—but these programs provide benefits beyond security.
Inventory vs. Cost Reductions
Successful companies try to find the best balance between inventories and cost. It’s simple for companies to simply load up with a large inventory of critical parts to cover any potential shortages, but that strategy carries its own risks and costs.
Warehousing costs go up, increasing the indirect costs for your goods. Further, there’s always a risk that excess goods can be wasted in inventory due to expiration dates (if applicable), changes in designs and models, or shifts in business that either reduce demand for certain parts or make them completely obsolete. That’s yet another indirect cost to absorb, and in industries with tight margins it can make the difference between success and failure.
A more reliable supplier with flexibility in supply options can help tilt the risk balance back toward lower inventory, leading to lower indirect costs.
A Partnership Approach
To make a local direct supply program work, it’s important to have a close and trusting relationship between customer and supplier—an effective partnership approach. This approach allows both sides to find the best arrangement to make both sides run smoothly, and establishes the necessary contacts and procedures to deal with emergencies and contingencies.
Contingency planning is an important element of a successful direct supply program—because no matter how much both sides plan, something is guaranteed to go wrong at some point and weak points and seams in the supply chain will be put under stress. A partnership approach allows for smooth contingency planning to minimize the weak points and keep the supply chain robust.
Flexibility to Match Services With Needs
Now that you have found a potential supply-chain partner, does the partner have the flexibility and capability to match your cost and delivery needs? By working together, you can find the optimum arrangement.
For example, it may make the most sense to go to a blanket order and release program for critical parts that are not high-volume items but cost a disproportionate amount to make in smaller batch sizes. You can enjoy the cost savings of economy of scale while lowering the associated inventory costs. Without a flexible supply program, you face a difficult choice. Over-ordering ties up too much cash in inventory; ordering smaller amounts introduces higher costs while raising the risk of running out of critical parts in case of a surge in orders.
Just-in-Time (JIT) operations almost require a local direct supply program by definition. The entire premise of a JIT system is to operate with the lowest inventory possible, and a proper supply program is crucial to keeping the system supplied. However, no supplier will assume all the risk in a lean supply chain without adding costs to cover that risk. With a mutually agreed upon local direct supply chain program, the risk is properly spread out to minimize costs for all while keeping JIT operations functioning smoothly.
Strategic warehousing options, managed inventory partnerships, automatic replenishment systems…any or all of these factors could be a part of your preferred supply method. All it takes is a supply chain partner with the flexibility to offer options and the capability to implement them—and, of course, the ability to provide quality parts at the right price. If you can’t use the parts or afford them, it doesn’t matter whether or not they arrive on time.
Explore the Options
Could your operation benefit from a manufacturer with a local direct supply program that is customized to fit your needs? Smartrend Manufacturing Group’s partnership approach allows for greater understanding of customer needs and the ability to design the best system to match those needs. You can reap the dual benefits of higher reliability and lower indirect costs for your goods.
Please browse our website to see if our product capabilities fit your needs—and if you don’t see what you need, ask. Our network of international factories has a wide range of capabilities beyond what is shown.
You won’t be disappointed, unless you like the thrill of pacing on the dock while looking at your watch and wondering if that critical shipment will arrive. Let Smartrend handle the logistics for you and relax—because even if you do enjoy the thrill of the unknown, it’s a safe bet that nobody else in your company does.
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