Managing a business provides a lot of things to worry over. There’s the continual pressure to meet short delivery deadlines; the fretting over cost increases; and the concern for the overall health of the business, to name just a few. Carrying large finished goods or component inventories has its own unique set of business issues to keep you up at night. Managing inventory can tax an organization in a number of ways, and steal time and effort which could be better used toward building the business.
Cash-to-Cash
If you are not familiar with the term ‘cash-to-cash’, it is quite simply the time interval between the point a product is paid for, and the time payment is received from your customer for the goods delivered. A company’s ‘cash-to-cash’ situation is negatively impacted when paying for production runs of items that are shipped to you and placed in your inventory. Payment is made either when the product is shipped or in accordance with the credit terms established. In the case of an overseas supplier, the product may not be delivered for weeks. Factor in the time it takes to transport the goods from the entry port; convert the final product; deliver it to the end customer; and finally receive payment and you’ve tied up a lot of money with no return potentially for months instead of weeks.
Consider these additional drawbacks to holding inventory:
- Physical space within an organization’s facility needs to be dedicated to store standing inventories. This space may be better served as production area.
- Internally-managed inventory requires a lot more employee time and effort to administer than Supplier Managed Inventory.
Supplier Managed Inventory (SMI) Can Remove Some of These Worries!
A SMI program is not going to solve ALL your business problems, but it can improve cash-flow and reduce the number of things you need to focus on. Quite simply, SMI relieves businesses of the burdens associated with ordering and managing large inventories. A typical SMI program calculates an organization’s total finished goods quantity requirements on a part by part basis over a set time-frame, and then determines a schedule for the production and delivery of smaller quantities of those items at established intervals.
A well designed and managed SMI program has many benefits, including but not limited to the following:
- Next day delivery of parts included in the SMI inventory.
- Driving out the costs associated with standing inventory, like administration, over-ordering and product/part obsolescence
- Reduction of the total cost of ownership (TCO), encompassing the acquisition; transport; storage; financial accounting; and labor devoted to the oversight of large standing inventories
- Improved cash-flow – Qualified businesses do not pay for inventory until it is shipped to them.
- The supplier has more efficient production options – In the case of a label printer, for example, similar size labels can be produced together in a production run. This can further enhance cost savings to the customer
Labels, Packaging & SMI Go Hand-in-Hand
Label and package printing are areas where end users can readily benefit from SMI programs. Graphics and text on labels and packaging are constantly changing. When shorter production runs are occurring at set intervals, these changes can be made at a point where little or no existing inventory is deemed obsolete by the altered graphics or text copy.
SMI programs are custom-tailored to each specific business, according to that business’s particular operational usage patterns. The goal is to go from ordering large amounts of inventory a few times a year based on longer business cycles, to a scenario where smaller amounts are delivered on a ‘just-in-time’ schedule at more frequent intervals. Whether that is semi-monthly, monthly, or weekly all depends on how the business will be best served. Automation ‘triggers’ can be set to alert customers when inventory on hand is low, or to automatically order more of the depleted stock.
There’s a lot more to SMI and the benefits it can provide any business which currently carries large standing inventories. We at AWT Labels & Packaging would appreciate an opportunity to evaluate your current inventory model, and demonstrate the benefits an of an SMI program. We’ve become an industry leader in deploying SMI programs for our own customers unique labeling and packaging strategies, and we’re currently managing over 50 such programs. We’re ‘experts’ in giving you fewer things to worry about, and giving you back time and resources you can invest in more valuable pursuits.
