Let's say your washing machine has been making a really strange sound whenever you turn it on. You don't sense any problems besides the noise – there are no leaks, the drums spins just as it normally does and clothes placed in the washing machine come out thoroughly cleaned. So instead of spending money on a repair, you ignore the problem. The next day, the whole appliance fails beyond saving. When a technician is finally called, he or she indicates the trouble was one loose screw. However, because the problem wasn't addressed at the onset, an otherwise small expense has ballooned into a huge cost.
Similarly, when original equipment manufacturers (OEMs) put small inefficiencies in their parts procurement process by the wayside, they stand to lose out on valuable opportunities to save money and enhance operations. A "low-cost" mindset is to blame here, and though this culprit may seem as though it works in a manufacturer's best interest, the truth is, it doesn't. Here's why OEMs in search of more effective procurement should stop thinking with their wallets and start considering the long-term benefits to on-site functionality.
"Only 5 percent of manufacturing practices end up adding value."
Low cost doesn't mean high value
How does one define value in manufacturing? As any lean manufacturing expert will tell you, companies must assess their personal value before undergoing changes, as these alterations will be made for the sake of preserving and increasing that value. According to Lean Manufacturing Tools, only 5 percent of manufacturing practices actually end up being value-added activities.
Though OEMs will need to determine where value lies within their own business, we can say with certainty it isn't in cost-cutting measures. Rather, reduction in costs anywhere should be the byproduct of adopting and implementing innovative initiatives that streamline workflow and target waste.
How VMI programs add value
According to a McKinsey & Company survey, two-thirds of companies polled believe value lies in "improving collaboration and communication within and across enterprises." Vendor managed inventory (VMI) programs support that ideal. When OEMs entrust parts procurement to VMI programs, these services bring together and act on a wealth of data gleaned from real-time production metrics in order to simplify and augment their procurement and replenishment systems. Additionally, VMI providers share relevant information with an OEM's suppliers, which promotes a system of procurement contingent upon the manufacturer's needs, not those of the supplier.
Apart from outsourcing cumbersome administrative duties to a third party, VMI programs can potentially cut back on costs, like those related to inventory management, labor and supplier prices. Getting the best deal isn't the sole focus of VMI programs, but it is one beneficial facet among a mosaic of value OEMs can bring to their operations.