In-House Procurement Systems vs. Outsourcing Inventory Management: Which is Right for You?

  • In-House Procurement Systems vs. Outsourcing Inventory Management: Which is Right for You?

Inventory management requires significant time, money, and labor, but what if you could reduce the effort needed for this aspect of your supply chain management? While many original equipment manufacturers (OEMs) rely on procurement systems, which have proven useful in many industries, they are far from the only option OEMs have to improve their inventory management, save money and streamline operations. Other strategies, such as vendor managed inventory (VMI) programs, provide many of the same benefits to OEMs and are powerful complements to existing procurement systems. Whatever the combination you choose for your company will depend on your needs and resources.

In-house automation with procurement software
Recently, Topline Strategy Group surveyed 241 professionals who specialize exclusively in supply chain management for a variety of high-earning companies, to gain insights on the effectiveness of procurement systems. Improved efficiency is the reason given by survey respondents for adopting procurement software. Procurement systems are great for automating a significant portion of the time-consuming routine tasks necessary for effectively ordering and maintaining inventory.

Among those companies that were satisfied with their systems, 48% said they saw increased productivity. “When sourced and implemented correctly, procurement systems represent an opportunity for organizations to drastically reduce costs, improve process efficiency and gain visibility into spending decisions,” Mark Digman, senior vice president of marketing at SciQuest, explains.

“Correctly” is the keyword. Looking at the companies that were dissatisfied, 38% said they felt limited in what they were able to accomplish with their investment. While procurement software can prove beneficial, it can also require a larger initial investment of time and effort than other options. Staff training has to be initiated, data has to be captured and turned into meaningful information, and adoption has to be meticulously monitored for an extended period to ensure reliable output. This takes at least one full-time employee away from other work, whereas outsourcing the task completely could allow OEMs to function even more efficiently.

Vendor managed inventory (VMI) programs
Vendor managed inventory programs allow you to outsource elements of your procurement process and can generate a significant return on investment (ROI). Essentially, you outsource the procurement process, as well as storage and delivery, to a third-party supplier. The supplier assumes the responsibility for maintaining and replenishing your stock levels. VMI programs can reduce labor costs, improve productivity and increase efficiency. This works especially well for class C components which typically represent less than 10% of total spend but could be 50%+ of the items purchased. An effective VMI program will result in less on hand inventory. Space can be freed up for production. Your VMI provider assume responsibility for product quality, delivery and stocking the product in a central location or at the point of use. Your staff can focus on meeting your production goals.

It is important to weigh your company’s needs against the benefits of either option carefully. Where one may provide reduced costs the other could drive up efficiency. The choice you make will depend on your lean manufacturing goals.

About the Author:

Aaron is the Marketing Director at Falcon Fastening Solutions, Inc. He is focused on sharing Falcon's unique approach to fastening and class C production component supply chain solutions with equipment manufacturers.

Fasteners and Class C Component Supply

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