Supply Chain Collaboration and VMI to Get Ahead of Economic Challenges
By Lisa Anderson
With record-breaking price increases and lack of material availability, manufacturers are experiencing increasing threats to profit margins and maintaining strong customer service. To add fuel to the fire, they are also now having to consider plans to prepare for a potential recession. It is becoming increasingly difficult to navigate these volatile times, and the most successful are not doing it alone. Instead, they are pursuing collaborative programs with supply chain partners. What is clear is that there will be more winners and losers created than at any other time in history. Thus, it is worth figuring out how to work with your supply chain partners to ensure mutual success rather than mutual demise.
First, it makes sense to evaluate your supply chain partners – both customers and suppliers. Most executives are reshoring, nearshoring and reallocating capacity in their supply chain, which means the supply chain will continue to evolve. However, as the pandemic has proven, companies are only as strong as our weakest link, so firms must be vigilant in selecting supply chain partners and make a change if needed. Companies shouldn’t simply assume that current partners are prepared for what’s ahead. Navigating both inflation and deflation is not for the faint of heart. Only the most action-oriented, innovative and collaborative will thrive. Companies should take the time now to assess their specific situation and be deliberate in making choices.
Once strong partners are in place, attention should be directed to how to work together to achieve dramatic results. One successful approach is to roll out a collaborative ordering process, also known as vendor-managed inventory (VMI). For example, when working with an aerospace and defense company that supplied controls for the cockpit, we partnered with our client to implement and upgrade VMI. We partnered with our client’s customers (such as Boeing) to determine what to send to their locations for them. We were able to improve service to Boeing and maintain high OTIF (on-time-in-full) levels while eliminating their cost of ordering and achieving their inventory level targets. From the manufacturer’s perspective, they were able to expand business by achieving the top supplier status. Additionally, they were able to improve margins and working capital by better managing inventory and costs with visibility into their supply chain.
In another example, a specialized distributor of bearings used VMI to manage their customer’s inventory for them. Their customer was a steel manufacturer, and so although bearings were not significant in price as compared with the rest of their raw materials, they were critical in keeping the steel mill running. Thus, this value-added service became the key reason the steel manufacturer considered the bearing supplier as strategic and vital through both inflationary and
deflationary times.
From the supplier point-of-view, an outdoor lighting manufacturer used a vendor-managed inventory program with its suppliers. Instead of hiring planners to determine how many components to keep on hand with limited space, they asked their supplier to manage it for them. The manufacturer always had the appropriate stock to supply the line, and they never ran out. Their suppliers became integral links in the supply chain and part of a collaborative S&OP process (Sales & Operations Planning, also known as SIOP for Sales, Inventory, Operations planning), resulting in mutual business growth and success.
As manufacturers focus on collaborative supply chain partnerships and programs such as VMI, they are creating unique value in their supply chain. To thrive during inflation and deflationary times, it is important to be ready to pivot quickly with changing conditions. Additionally, by partnering with their end-to-end supply chain, these manufacturers create sustainable, profitable growth for mutual success.
Lisa Anderson is the founder and president of LMA Consulting Group Inc., a consulting firm that specializes in manufacturing strategy and end-to-end supply chain transformation that maximizes the customer experience and enables profitable, scalable, dramatic business growth. She recently released a new “Thriving in 2022” eBook download that offers insights from 22 experts in manufacturing, supply chain and technology to thrive amid the current challenges facing businesses. To download the ebook, visit:
www.lma-consultinggroup.com/thriving-in-2022.
