11 Benefits of Shifting Inventory Risk onto the Manufacturer

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who-should-own-inventory-risk“Who should own inventory risk?” That question was posed – and answered – by SupplyChainBrain’s Think Tank.

You can read their article here. In short, SCB Contributor M. Scott Moon proposes shifting inventory risk onto the manufacturer, rather than the seller.

“The time is right to fundamentally change the way we think of inventory (and the sophistication of the tools and techniques for planning and managing it), and the relationship between a manufacturer and selling locations.”

Margin Tug-of-War

Rather than manufacturers and sellers pushing/pulling over pricing and margins, these 2 players become partners. Manufacturers would support their sellers in making goods available as needed. They would assume the inventory risk, command a higher price for taking on that risk, and deliver products in a more timely and efficient manner.

Simply put, the time is right to create an aggregate demand signal. Enterprise-wide synchronization between Sales and Operations Planning (S&OP) is key.

Create a Win-Win-Win

Leveraging supply chain collaboration tools, manufacturers and retailers could achieve these 11 benefits:

  1. Position product close to end-customers. Orders could be completed from the closest location – without increasing inventory.
  2. Faster delivery times and lower costs.
  3. Better use of inventory and capital devoted to making goods.
  4. Less pressure on retailers to lower prices, or on manufacturers to reduce their selling cost.
  5. Less risk to sellers to procure goods, store them, sell them to a customer, then incur the cost of returns.
  6. Manufacturers can make goods available as needed, reducing inventory in the entire pipeline (manufacturer, DC and seller store), allowing sellers to lower investment and risk in salable goods.
  7. Drop-ship opportunities would expand and slower movers could be stored collectively and shipped only as needed, reducing perishable loss.
  8. Long lead-time activities (such as replenishment, floorset transitions and event preparation) could be streamlined with flow moving directly to the end consumption point with minimal seller risk
  9. An aggregated demand signal would help minimize inventory in the entire supply chain network, while improving customer experience.
  10. Ability of manufacturers to focus on producing goods based on consumer demand vs. seller demand.
  11. Sellers would reduce their end-of-season overstocks, maintaining profit margins and customer satisfaction.

So what do you think? Is this a viable solution? Is your organization set up to support this level of supply chain collaboration? If not, check out our Integrated Business Planning solution.