Recently, there has been a movement in the manufacturing world to decrease inventory overhead. Without realizing it, your business might be overspending on inventory management and stocking.
More businesses are using inventory programs to reduce their spending and increase their productivity, both of which are essential for success in the health and safety industry. If you don’t already have an inventory program in place, now is the time to consider one.
In this guide, the material experts at Mueller are going to cover the three most common types of inventory programs, how they can benefit your business, and how to choose the right one for you. You can use these factors to reduce costs and optimize your workflow simultaneously.
What Are Inventory Programs?
Inventory programs and inventory systems are often confused for one another because they sound similar, but they have very different functions.
An inventory system is a computer-based program used to track how much material your business has in stock. Inventory programs are restocking methods designed to meet your customer’s needs and give them the best cost. At Mueller, we also refer to them as supplier-owned & managed inventory (SOMI) programs.
There are five different kinds of inventory programs, each with their own benefits:
- Min-Max programs
- Kanban programs
- Safety stock programs
- SOMI programs
- Tailored programs
A min-max program is determined by sending a forecast to your supplier or converter. This forecast details your material usage levels, giving the supplier a range to work with.
Using this forecast, the supplier develops a minimum and maximum amount of materials that your business needs. The inventory program then works to keep your business within that window by determining how many parts the supplier or converter needs to ship to you.
Kanban programs are similar to min-max programs. The supplier or converter supplies a designated amount of material to meet customer needs. As the customer pulls material from that batch, a signal is sent to the provider that they need to replenish stock within a certain timeframe.
This is a more focused method than min-max programs, as Kanban systems supply you with inventory right as you use it, not just when you approach the minimum amount.
Safety Stock Program
Safety stock programs are different than min-max and kanban. In a safety stock program, your company decides on a designated quantity of material to keep on your supplier or converter’s shelves.
The converter wants to keep this raw material inventory unconverted and unused, especially if your business has multiple products made from that same product. This gives both the converter and you a degree of flexibility, allowing you to order parts as you need them straight from the converter.
A supplier-owned and managed inventory (SOMI) program is similar to safety stock programs, with one big difference; instead of storing raw material at their facility, your supplier stores completed parts.
In a SOMI program, you give your supplier a blanket order/commitment, then they buy the raw material, bring it in, make your part, put them in boxes, and stock them. This is very beneficial for situations where you have short visibility on a project with long lead time. With a SOMI program, you can get the parts you need, when you need them.
Lastly, Mueller has the capabilities to create a custom program that is tailored directly to your needs. Whether you need some combination of the programs discussed above or a completely unique program, our team will work with you to find a system that best suits your business’ specific needs.
There is always a cost associated with carrying inventory, and these programs help control that cost by managing your inventory for you with constant optimization.
How Can Inventory Programs Benefit Your Business?
All of these programs are centered around cost. You put an inventory program in place if you want to decrease spending. Here are a few ways that inventory programs can help decrease decrease your material spending:
- Reducing or eliminating line down situations
Anytime a line goes down due to a lack of material or parts, money is lost. An inventory program will keep parts steadily flowing in, ensuring you never have line-down situations.
- Significantly reducing inventory carrying costs
There’s been a big push in the industry recently to reduce the amount of material kept on shelves. If material is just sitting on shelves, it’s costing you money since it’s in your facility and you aren’t getting paid to use it.
When you partner an inventory program with “just in time” delivery to get your parts and materials exactly when you need them, you don’t have to worry about not having material stocked.
- Enabling better blanket orders
Blanket orders connect release quantities to dates that your business wants parts shipped to you. For example, say a blanket order has 100,000 pieces total, but you only want 10,000 at a time. On the blanket order, you would list release dates for those parts. Your converter would then go to a raw material supplier and set up a method for bringing the material in sections so that you are not carrying it all at once.
This method saves everybody time and money. It keeps the converter and your business from taking on inventory costs since you don’t have to hold 100,000 pieces at once.
How Do You Decide Between Inventory Programs?
Unfortunately, there is no surefire way to determine what program is best for your business. The only way to decide is to have a discussion with your material source. They will give you options to work with, and you can decide what program will best address your needs.
Having the right amount of parts and materials is essential in a time-sensitive industry like health and safety. Selecting the right inventory program will open your business up to new opportunities to cut costs, all while providing your customers with the products they need.
Use this guide to survey the different programs and their benefits, then have a discussion with your converter to see if managed inventory programs are right for your business.