Many companies place an emphasis on having suppliers close to their manufacturing facilities. Sometimes that provides advantages, however many times it does not.
When a supplier is manufacturing parts close to the customer, freight and logistic costs are reduced as well as the time required to get the product to the point of use. That is the case with many automotive companies whose suppliers locate close to the assembly plants.
In many cases, these same benefits do not exist when the supplier is a distributor. When that is the case, being in close proximity can add inventory and additional unintended costs to the supply chain. In most cases the distributor has inventory in a primary distribution center as well as in the local warehouse. Having several locations increases the costs of labor, equipment, and local storage.
The most common reason for wanting local inventory is to respond to shortages. Most robust replenishment programs should anticipate your demand changes even if it is only by a few days, thus reducing the need for your supplier to carry local stock. With a few days’ notice, parts can get just about anywhere in the world. In the case of shortages, the local stock becomes the focus when in reality the focus should be on system data, inventory levels and supply chain inventory. When this detailed review cannot effectively predict spikes that will require parts in 1-2 days, local safety stock on selected parts can provide some additional protection. The key is to design a replenishment system that is responsive to demand changes and allows the supplier to get product to the point of use prior to running out.
Local stock can be expensive. Consider the changes in the retail markets. Amazon is expanding and malls are dying. Blockbuster is dead while Netflix lives on. Even in the fastener industry, the largest distributor is closing stores at a record pace. These trends are all driven by the cost of “local” stock.
So the next time you talk to a fastener supplier who isn’t down the street, consider how they are innovating the replenishment process to improve part availability and lower costs.
Author: Bill Derry