June 01,
2006
One
of the most attractive benefits a distributor can offer its customers is the
relief from carrying inventory on the books. Manufacturers need to make sure
they have a steady flow of parts. Production interruptions can be disastrously
expensive both in terms of serving customers and in real costs. Yet maintaining
levels of inventory necessary to prevent any possible supply shortage
can
also be expensive.
Distributors
have stepped in to solve this problem by placing parts in or near the
production facility while keeping those parts on the distributor’s books until
the manufacturer actually needs them for production. Vendor-managed inventory (VMI) programs can take two forms. The
distributor can place its inventory at or near the customer site for the
customer to draw from when needed. Or, the distributor can actually create,
stock and run its own store of parts inside the plant. With in-plant stores,
the distributor actually assigns personnel to manage the store and also support
the customer with any parts-related engineering needs.
According
to Darr Greenhalgh, director of supply chain services for the North American
components division at Arrow Electronics Inc. in Melville, N.Y., consigned
inventory or VMI programs date back to the 1980s. In-plant stores are more
recent, having come into play during the 1990s. Over the years, new aspects of
VMI programs have developed. Greenhalgh notes that Arrow ensures its VMI
customers will be protected from shortages by creating inventory levels that
account for real-world demand spikes. “We buffer inventory for customers,” says
Greenhalgh. “We’ll run off their forecast, but we’ll also look at their demand
patterns and provide additional inventory for the upside. Then, if they get a
big order, the inventory is there to cover them.”
Another
recent challenge to VMI programs is the transition to lead-free compliance. In
many cases, customers need to draw from both RoHS-compliant parts while also
needing traditional leaded parts, since not all products are shifted to
lead-free versions simultaneously. “In many cases we are maintaining two lines,
lead-free and traditional,” says Greenhalgh. “We are willing – through this
transition period – to cover their needs for both sides.”
Another
area of recent development in VMI is extending managed inventory to include
more than just the distributor’s own parts. “In-plant stores can be treated as
a logistics center,” explains Greenhalgh. “Even if we don’t own the parts, we
can still manage how they’re transitioned.” In these cases, Arrow charges on a
transaction basis or a fee-for-resources for managing parts that are
not
owned by Arrow.
Phoenix-based
Avnet Inc. also runs a considerable number of VMI programs and in-plant stores.
While VMI began as a North American phenomenon, it has lately started to shift
around the globe, following outsourced manufacturing. Avnet is working to
support its customers as they move their manufacturing around the world. “It’s
not that difficult to run VMI in the Americas,” says Greg Frazier, EVP and
director of supply chain services worldwide for Avnet. “But there is a lot of
complexity in doing it around the world.” Frazier explains Avnet is still in
the process of building VMI programs in Asia. “We’re working to find a way to
get material in and back out of Asian facilities,” says Frazier. “We want to
find a way to have consistency around the world with regional nuances.”
He
also notes that VMI and in-plant stores offer the additional benefits of
consistent replenishment. “As the parts are pulled, the inventory goes down a
certain level. When it gets below a certain point, we replenish it,” says
Frazier. “This gives the customers the flexibility to build while the inventory
still resides with Avnet, and they also know they will not run out of parts.
“With in-plant stores, we not only provide parts, but also personnel,” says
Frazier. “Our people will put the material on the production line. They will
get the unused reels and put them back on site.”
Frazier
notes there are different levels of consigned inventory programs based on the
customer’s needs and the volume of parts used. With smaller volume
manufacturers, a simple consigned inventory program is developed. In-plant
stores are typically used with high-volume customers. “A basic consignment is
pretty simple, and the volume is not significant,” says Frazier. “When you move
to an in-plant store, the volume has to be there.”
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