There are thousands of companies out there that wear the shackles of supply chain struggles. Just when you think everything is going as “planned”, the littlest issue can cast a shadow that looks similar to that of a giant mountain. The word planned
is noted above because anyone who has been part of supply chain for a while knows that there are always uncertainties that present themselves, and usually at the most inopportune times. The list of things that force a company onto the supply chain struggle bus is endless:
- Too much inventory
- High carrying costs
- Lead times
- PCN’s (Product Change Notification)
- EOL (End of Life) Notices
- Reduction of working capital
As previously stated, the list goes on; but if we had to focus on one pain point out there right now, it would be inventory. Inventory is usually the largest asset, as well as the largest expense, for manufacturers. Executives are continually charging their staff with reducing inventory levels to preserve working capital and avoid inventory carrying costs. These inventory issues aren’t limited to smaller companies either. No, we are talking about some of the largest companies in the world that are running into issues with too much inventory and high carrying costs. So what does a company do when they want to solve for the potential problems listed above? Let’s use a case study from EDX Supply Chain Solutions as an example. Now, full disclosure: this is an EDX blog, but we are also the only company out there that runs this type of inventory ownership…period. So lets take a look.
A manufacturer (OEM) of office equipment utilized a contract manufacturer (EMS) to produce their products. As is common with many contract manufacturing agreements, at the end of production any remaining excess inventory must be purchased by the OEM. In this case, the EMS approached the OEM with a $ 1M claim.
The OEM employed EDX’s Inventory Ownership solution to settle the excess inventory claim. Instead of the OEM purchasing the inventory EDX purchased the inventory from the EMS. EDX’s program allowed the OEM 3 years to consume the inventory and/or pay for the $ 1M inventory. Over this same 3 year period EDX’s program aggressively marketed and sold a portion of this excess claim to third parties. During this term, 100% of the recovery dollars from the sales were applied towards the OEM’s purchase commitment.
At the end of the 3 year term, the OEM calculated that, not only were they able to preserve their working capital by virtue of not having to purchase the claim themselves, they actually reduced their inventory claim by several hundred thousand dollars.
In conclusion, the main idea is to always have a plan, but to also have a plan for the plan. We have to accept the fact that issues will come up and uncertainties will stand in our way, but there is always a solution or temporary workaround out there to save the day. “Perfection is not attainable, but if we chase perfection we can catch excellence”. Question: What is your biggest supply chain issue?