5 Reasons for Outsourcing Inventory Management
The ISM Difference - Keep inventory under control so you can focus on what you do best
The key to manufacturing competitiveness is taking care of valuable resources. Businesses that reduce management distractions, minimize inventory-carrying costs and focus on core competencies improve their competitive advantage. Outsourcing inventory management can be useful for achieving these goals.
Inventory management is important to any business trying to remain competitive and profitable while continuing to grow. Not enough inventory means lost sales. Too much inventory means increased costs for storage and management as well as less cash on hand.
Collaborating with a reliable distribution partner to manage your inventory can improve manufacturing efficiency. It also frees up resources, focus and energy for development and growth. This blog post reviews some of the primary benefits provided by outsourcing your inventory management.
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Reason #1 Improve overall process efficiency
Every manufacturer becomes more competitive when they can focus on their core business. Efficiencies gained from outsourcing inventory management allow a company to:
- Maintain focus on core competencies
- Deepen competitive advantages
- Enhance marketplace differentiation
- Avoid outlying, resource-intensive tasks
- Reduce logistics and carrying costs
Reason #2 Free up resources
Every company has a limited pool of capital, both monetary and personnel. Tying up either of these reduces efficiency. Freeing up capital as management time and resources makes sense because this can:
- Trim management administration costs
- Reduce sourcing and shortage issues
- Minimize management distractions
- Focus capital on manufacturing capacity
- Supplement existing skill sets
Reason #3 Save inventory space
Most manufacturing environments are constantly being tweaked to get the most out of all available space. Using some of this valuable space simply to store inventory reduces productivity and efficiency. Moving inventory storage to a service provider:
- Prevents the conversion of production space to inventory storage
- Improves the efficient use of existing manufacturing floor space
- Reduces pressure to invest in additional facilities or buildings
- Reduces or eliminates the need to reconfigure production systems
Reason #4 Get lower minimums
Lower per piece cost is usually the carrot that often leads to higher inventory levels. Unfortunately, the lower cost of parts is frequently offset by additional facility and management expenses. An alternative is to outsource inventory to provide lower piece costs along with reducing purchase minimums. Outsourced inventory management can improve the cost of goods sold by:
- Lowering purchasing costs because of economies of scale
- Eliminating or minimizing commitments to larger inventories
- Reducing the costs associated with carrying unused inventory
- Removing the necessity of placing large order minimums
Reason #5 Pay for parts as needed
Volatile demand, short product life cycles and frequent product changes are a reality of modern manufacturing. Become more demand driven by avoiding excess inventory. Developing an inventory management partner that uses inventory controls built into their processes provides a variety of benefits:
- Just in time manufacturing efficiencies
- Tightly controlled inventory management
- Reliable delivery timing of materials as needed
- Supply-line tracking to ensure component quality
- R&D and post-sale replacement parts support
Outsourcing is more nuanced and complex for modern manufacturers. This complexity matches the reality of a rapidly changing marketplace. Because of this, inventory management is an important consideration for outsourcing. Each company’s goals and unique manufacturing requirements determine the type of inventory support they might benefit from. Many manufacturers gain competitive advantages from using a reliable sub-contractor to help them reduce inventory costs and keep their production lean and nimble.
Contact us now for a free account evaluation. Let’s design the right mix of stock management, just-in-time delivery, warehousing and lower minimums you need to reduce distractions and help your business flourish.
Some additional reading
- Outsourcing Inventory Management (from Xero)
Xero is a New Zealand-based software company that develops cloud-based accounting software for small and medium-sized businesses.
- Time to outsource inventory management? (from the Fabricators and Manufacturers Association)
About the author
Steven C. Williams, BS, is the technical writer and an inbound marketing specialist at Industrial Specialties Manufacturing (ISM), an ISO 9001-2015 supplier of miniature pneumatic, vacuum and fluid circuitry components to OEM's and distributors all over the world. He writes on technical topics related to miniature pneumatic and fluidic components as well as topics of general interest at ISM.