In most Procurement settings, suppliers and business inventory pass like two ships in the night — when they really could be sailing together as a small fleet. By pulling in suppliers closer to your procurement, inventory and production activities, you can straighten out a lot of the kinks and improve yourself in three areas:

• lower the cost of inventory
• reduce the time needed for replenishment, and
• being prepared for sudden switches in direction due to business changes.

The first step in establishing a system built on supplier collaboration is gradually shifting the focus of your inventory to a “pull-based” model. In the “pull-based” model, suppliers are charged with monitoring and replenishing supplies.

This is opposed to the standard “push-based” model, where inventory managers submit purchase orders for dwindling stock.

Three of the inherent shortcomings of a “push-based” inventory:

• frequent stock outages or shortfalls
• longer order cycle times, and
• difficulty evaluating supplier performance.

The most common form of supplier collaboration is the Supplier Managed Inventory (SMI) model. When this happens, an outside partner is brought in to help manage stock acquisition and monitor stock levels.

In most cases, the outside partner is the supplier of the necessary inventory element(s).

The Procurement/Inventory people inform this supplier, on a regular basis: current inventory status, expected demand and one or two other key stats. The Procurement/Inventory people then have the visibility to track the inventory, either daily or weekly.

Supplier collaboration arrangements are slowly catching on. A recent Aberdeen Group survey showed that 26% of Global 2000 organizations had consistent supplier collaboration processes.

There’s still one coral reef that’s keeping these two ships from sailing together. In many cases, the Inventory operation and the supplier have significant differences in software systems. It means either common IT ground must be built in, or some other bridge has to be built to complete collaboration.

Tags: inventory, procurement, replenishment, software, supplier