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  • Insights On Efficiency


Reduce Working Capital With a Customized VMI Program (Part 2)

Posted by Joe Andrews - IT Manager

This is part 2 of a 2-part series looking at how a custom VMI program can and should result in significant reductions in working capital. The first post looked at Supply Technologies’ proprietary approach to assessing each customer’s current situation, what we do with that assessment, and the roles that forecasting and production planning play as a custom program is implemented.

Part 2 looks at inventory management, inventory ownership & distribution, and technology & systems as areas that can contribute to working capital reduction with an implemented program.


TSM_InvntMgmtThe Supply Technologies approach to inventory management is simple: ensure that our customers have the optimal amount of inventory at each part location in every one of their plants. Not one more or less than they need, because that’s what optimal means. Every recommendation we make and action we take is aimed at the singular goal of saving customers inventory management resources, including time, labor, and money.

The most critical step in developing our recommendations is to conduct a Tactical Process Analysis (TPA), discussed in part 1 of this 2-part post. A TPA helps Supply Technologies’ specifically address each customer’s unique operating characteristics, because no two operations (or even facilities) present the same needs or challenges. The TPA maps out each discrete supply chain action and process so we get an accurate picture of everything that employs people, facilities or assets within the supply chain. 

The results of the TPA help us pinpoint the level of inventory, at the part location of every facility, that’s optimal for productivity, efficiency and working capital minimization. We’re often able to reduce the amount of inventory dollar investment at each plant as a result of this process.

Another step in the TPA is investigating the parts on the plant floor and determining their frequency of use. It’s low-hanging fruit when we determine that the placement of some parts is not aligned with their frequency of use. This allows us to fine-tune the replenishment process for cost reduction. High-volume parts are put in highly productive “strike zones,” while slow-moving and inactive parts are removed from those valuable high traffic areas, better utilizing critical space and reducing the amount of handling of those parts. In addition, we improve the actual ergonomics involved in handling those parts, a step that helps boost productivity.

Inventory Ownership and Distribution

There’s no shortage of potential approaches to physically position parts inventory at manufacturing facilities, keeping in mind that the driving force is minimizing cost and working capital without any sacrifices to productivity. Each customer’s program is developed from the bottom up, so while some parts/facilities items may be handled via dock-to-dock because of relative value to service cost relationships, others within the same program could be managed through fill-to-location or pay-on-consumption models.

Technology and Systems

One of the most often overlooked contributors to reducing working capital is the implementation and utilization of visibility, collaboration and inventory optimization, technology. In fact, according to Aberdeen, best-in-class companies are:

  • Twice as likely to be using inventory optimization tools providing more effective accounting for supply chain variability and often, enabling a 10-30% reduction in overall inventory required
  • 2.4 times as likely to be using inventory collaboration technology that allows companies to free up working capital by reducing unnecessary safety stock typically held to hedge against potential supplier delays and quality issues
  • 1.6 times as likely to be currently using inventory visibility software proving online visibility into the location of in-transit and at-rest inventory, the status of supply chain milestone events and receive alerts when events deviate from plan. This visibility results in reduced inventory levels, faster order-to-delivery cycles, reduced costs and improved global supply chain budget accuracy.

Supply Technologies leverages some of the industry’s most sophisticated proprietary technology intelligently deployed to support your business objectives. Our single ERP system provides everyone, at every one of your locations, the information they need to make timely, informed decisions. Best of all, a single computing platform provides a comprehensive, consistent view across the globe.

How Long Before You See Results?

Supply Technologies VMI programs are focused on providing resource savings that make immediate impact on ROI. Specifically, the various resources throughout a facility that a custom VMI program directly impacts are:

  • Purchasing administration
  • Receiving
  • Material handling
  • Quality assurance
  • Accounts payable
  • Freight and warehouse space
  • Inventory carry charge
  • IT systems charge for purchase

Supply Technologies’ VMI programs are implemented so that 100% of the above resources are impacted on the program start date.

A Continuing Role in Your VMI Program

The implementation of a VMI program is just the beginning of Supply Technologies’ role in a customer’s ongoing inventory management. Each VMI program is comprehensively reviewed between six months and a year after the initial implementation, based on customer preference and team judgment on the stability of the program, using data electronically collected at the each part location. This data, along with local plant floor information such as knowledge of changes in production, are used to continually optimize the level of inventory investment.

With more than 400 custom VMI programs implemented, Supply Technologies’ programs are focused on customers’ resource savings and asset productivity – with an immediate quantifiable impact on their overall ROI. More evidence – and it’s all about the evidence – that all programs and program providers are not created equal.

Learn more about our Tactical Process Analysis and how we can help you reduce your current working capital.


Topics: Custom VMI Program,