The Case for Supply Chain Management

Supply chain management is an important aspect of manufacturing, and it isn’t something that only big players have to worry about—it can be just as important for small- to medium-sized manufacturers.

You may have heard that some large U.S. manufactures have made their suppliers part of their Enterprise Resource Planning systems (ERP), allowing them to see everything from order demand to daily production schedules. Manufacturers do this to level out fluctuation within their supply chain and to shorten the time it takes suppliers to react to changes in demand. As you know, an unpredicted increase in demand for your product can quickly cause a shortage in supplies, which can lead to late delivery of products and disappointed customers.

Fortunately, there are plenty of things you can do to help manage your supply chain.

If you don’t have a full-blown ERP system, you can start by implementing a Kanban system. Kanban is a visual inventory control system. You place cards with all pertinent product information within your inventory. When you get to the card placed before the end of the stock you are depleting, you have all the information you need to reorder supplies. Ask your suppliers to set up your Kanban systems and come into your facility to manage the parts they are responsible for. Using this system reduces labor costs and gives suppliers a better look at what you are utilizing.

A high-tech version of the Kanban system uses computerized inventory tracking. These systems can be set up by you or your supplier. Every time a component is pulled, an electronic message is sent to your purchasing staff or your supplier and a replacement part is sent to your facility. You can set reorder quantities as you see fit. If you have your supplier manage the system, it can save you money and staff time.

You can also reduce inventory costs by establishing consignment agreements. There are multiple ways you can achieve this. First, you can set up consignment on a monthly expense basis. In other words, you pay a set percentage of the cost each month to the supplier. Or you can set it up so you pay a set percentage of cost when the goods are received by you and then pay the supplier as time goes on. Finally, you can pay as you use the goods. Which option is chosen is dependent on your supplier’s standards as well as the cost of the product, volume, turnaround time, and the relationship between you and the supplier.

Another option is to find a company to manage your supplies and inventory for you, which is called Vendor Managed Inventory (VMI). Their involvement can be as minimal as providing storage solutions or as large as setting up part masters and certifying your supply chain.

Take a close look at your supply chain to see if there’s room for improvement. A little bit of time and supply chain management can save you time, money, and headaches.