Over-processing waste is defined as expending more energy to produce items than needed through wasted movement and time.
How Vendor Managed Inventory (VMI) Services Reduce Over-Processing Waste
The most obvious way that VMI Services reduce over-processing waste is through vendor consolidation. Consider the time and energy Purchasing spends on:
- sending parts out to quote
- qualifying and choosing a new vendor>
- going through the sample approval and quality control process
- reordering or following up on the whereabouts of the part(s)
- making payment on invoices
Now, multiply this by the typically large number of SKU’s for all the class C components needed throughout a manufacturing plant and the variety of different suppliers currently needed to fulfill each of those orders!
A VMI partner takes all of those nuisance items from Purchasing’s list, providing them with one, comprehensive invoice that breaks out all the necessary monthly purchases in one place. This allows Purchasing to focus on the higher-cost (A and B) production parts whose cost reduction would have a more significant impact for their organization while still saving money on the overall cost of the class C items.
The Cost of Generating a Purchase Order (PO)
The cost of generating a purchase order varies by organization. You need to know the salaries of each individual involved in the process; amortize the price paid for systems by the number of purchase orders generated over the life of the systems; know the telecom and/or paper costs; factor in overhead costs, etc. Experts suggest saving time by using a number in the range of $100 – $200. A properly developed and deployed VMI program can significantly reduce your PO cost.