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Minimizing Inventory Liability

Inventory may be the life blood of manufacturing, but it can also be a liability, cutting into margins, quality and deliverables. Read on to find out how to minimize your inventory liability.

Inventory is the life blood of manufacturing. With a ready supply of the right parts, assembly operations flow smoothly through final shipment and collection of revenue. Yet inventory can also be a liability, impacting margins, quality and deliverables.

Getting a handle on inventory and developing strategies to minimize liability is a growing concern for a wide range of original equipment manufacturers (OEMs) who are seeking to drive cost out of their operations by focusing on core capabilities – the development, marketing and selling of their products – and leaving assembly, integration and fulfillment to partners with expertise in those areas.

As never before, bringing a product from concept to market is becoming increasingly complex. Manufacturing processes and bill of materials are becoming more specific. Shorter product lifecycles create new demands to turn out products faster than ever before. Margins are razor-thin, and throughout the industry, companies are working across a complex supply chain of design, fulfillment, materials planning, inventory management, and manufacturing solutions, all designed with a single goal in mind: to help manufacturers operate as profitably as possible.
Plan for Purchasing Power

Purchasing power is today’s rally cry. With inventory as one of the key elements at the center of manufacturing success, it becomes imperative to project inventory issues at the onset of a product build and evaluate outsourcing partners based upon criteria that can minimize the impact of these foreseeable issues. In other words, create a playbook that stacks the odds in your favor.

For instance, pricing fluctuations inevitably occur in a product’s lifecycle. This can be an issue if the price has dropped, yet you are locked into a conventional agreement that doesn’t provide flexibility for shifting prices.  This can definitely be a competitive disadvantage.

With the short lifecycle of many parts, your may find yourself reluctantly designing in a new part that can wreak havoc on what was once a stable and reliable solution. In this case, having a larger inventory on hand for the product’s lifecycle would have been the optimum strategy.

Rapid product innovation can pose another inventory issue when a new part is superior to the inventory you are already committed to for your production cycle. Without the latitude to change inventory, your product lags in innovation.

Knowledge Is Power

Evaluating inventory requirements and forecasting for your product lifecycle gives manufacturers an edge in controlling inventory liability and provides an optimum playing field. But to reach the ultimate goal, frontline product expertise on the integration factory floor is a critical factor. Outsourcing partners need to offer their expertise and counsel in knowing what components work best together and the ramifications of certain component combinations. What looks good on paper must be translated into the real world, where any deviation can impact the ultimate product. 

Choosing The Right Partner For Product Production

Working with the right partners is integral to achieving product manufacturing goals. Leveraging the strengths of others helps ensure innovation and responsiveness to global demands and requirements, and ultimately, business success. While there are many criteria for evaluating the right partner for your specific needs, these are a few essential ones that need to be on your checklist:

1. Evaluate the supplier relationships of your partner. Can they offer you price protection for fluctuating part costs?

2. Review their line card. What products are readily available? Are your BOM key components represented?

3. Do they offer inventory stock rotations?

4. What technology expertise do they offer?

5. Component interoperability is essential for maximizing product quality and performance. What expertise do they have in this area?

6. Are the manufacturing facilities ISO 9001:2000 certified, incorporating improved material flow concepts and providing enhanced productivity?

7. Do they provide an end-to-end solution, providing supplier relationships, manufacturing, logistic fulfillment and post manufacturing support?

For the growing ranks of innovative OEMs, outsourcing integration and production of their products enables them to produce a greater variety of products in a shorter timeframe. Setting yourself up for success includes a focus on inventory as part of the assessment process in selecting a product partner. Much value can be gained through leveraging purchasing clout to keep prices stable and predictable. While the scope and quality of the integration facilities should not be overlooked, purchasing power and product knowledge add the extra edge for innovative OEMs.

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