​Welcome back to our series about supply inefficiencies. In this video, we want to talk about hidden labor costs that could be draining your budget.

If you are purchasing and warehousing your inventory on-site, you should be aware of labor costs that are significantly contributing to your total cost of ownership, or TCO. From the time a production forecast hits a purchasing manager’s inbox, until the time that part is consumed on the production floor, there is some degree of associated labor cost from several different departments.   

First, consider the administrative labor hours spent in just the procurement process. This would include vetting a new supplier, negotiating price, managing sample approval, generating purchase orders and processing payment. Now, multiply this internal time factor across all the parts you have in inventory!

Next, consider the labor hours spent once the product arrives. You have tasks such as receiving, inspection, stocking, kitting and subassembly, and moving parts from stock to the point of use. All of these non-value-added activities could be running up your TCO tab at an exponential rate daily.

Come back to Falcon Fastening soon. Our next episode will take a closer look at carrying costs.

Thanks for watching!

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5 Supply Inefficiencies Costing You a Fortune…Continued

Supply Inefficiency Intro
Supply Inefficiency IntroTotal Cost of Ownership
Lowering cost is a top priority, but many manufacturers just shop for the lowest price and completely miss the bigger cost-saving opportunity.
Supply Inefficiency No. 1
Supply Inefficiency No. 1Labor Related Costs
If you are purchasing and warehousing your inventory on-site, you should be aware of labor costs that are significantly contributing to your total cost of ownership, or TCO.
Supply Inefficiency No. 2
Supply Inefficiency No. 2Carry Costs
Inventory carrying cost can be up to about twenty-five percent of the overall value of the inventory, but this can be much higher without proper management.
Supply Inefficiency No. 3
Supply Inefficiency No. 3Buying Direct
It might seem better to purchase inventory directly from the manufacturer or supplier, but the cost of doing so includes more than just the purchase price.
Supply Inefficiency No. 4
Supply Inefficiency No. 4Freight Costs
If you are buying inventory direct, freight charges can quickly eat away at any cost savings benefit you initially believed you would realize, especially if you are using multiple suppliers.
Supply Inefficiency No. 5
Supply Inefficiency No. 5Error-Related Costs
When things don’t go as planned, course-correcting can be an expensive and painful process. Error-related costs, such as downtime, can make or break a production budget.
Supply Inefficiency & The VMI Solution
Supply Inefficiency & The VMI SolutionReduce Costs with VMI
Now, let’s look at how a vendor managed inventory, or VMI, solution addresses these five supply inefficiencies.