A managed packaging inventory
Seven clear signs that your business should outsource the management of your packaging
Does your business frequently – or occasionally – run out of stock of packaging? Do you find yourself doing lots of manual stock counting? Do you even know how much packaging there is at your business?
Maybe you wish someone would take care of your packaging inventory for you?
If any of this sounds familiar, then the chances are that your business would benefit from implementing a vendor-managed inventory (VMI) for your packaging.
Seven tell-tale signs show that your business could significantly improve performance and efficiency (and usually costs) by using a managed inventory service. This guide highlights these signs, helping you to decide if you should implement a service of this type at your warehouse.
What is a VMI?
Definition of a vendor-managed inventory
OK, first things first. What is a VMI?
A vendor-managed packaging inventory is where your supplier takes care of your entire range of packaging products. A VMI agreement includes maintaining (and holding) stock, planning peaks and troughs in demand, and even managing obsolescence. Packaging supply typically uses a Just In Time (JIT) delivery schedule.
Your packaging vendor – your supplier – manages stock levels, production and supply of your entire packaging requirement. Your boxes and supplies are then usually delivered on a just-in-time (JIT) basis.
This type of service can have several wide-ranging benefits for your operations.
Firstly, it can help reduce the storage space required for packaging at your business. This saving can result in reduced warehousing costs and potentially free up valuable space for other items (or even to expand production capacity).
Secondly, it allows for corrugated packaging, in particular, to be supplied on much shorter lead times, making you more flexible in terms of meeting peaks in demand.
And finally, with your packaging supplier fully managing your inventory, it allows them to take care of forecasting, efficient production cycles and managing obsolescence.
Reduced admin and paperwork complement these other benefits and make your packaging supply more streamlined and slick.
Seven signs you need a VMI for your packaging
Indicators you should use a vendor-managed inventory (VMI) for your packaging
But surely these benefits would make a vendor-managed inventory suitable for any business?
Well, yes, it would.
But whilst there is a strong argument for any business that uses a certain level of packaging to consider moving to a VMI agreement, there are several issues that businesses can experience, which you can only alleviate by using a service of this nature.
So without further ado, here are the seven signs you need a vendor-managed inventory (VMI) for your packaging:
- You frequently run out of stock.
- You have discrepancies between the packaging purchased and used.
- You don’t know how much packaging you have (or use).
- You do too much manual counting of packaging stocks.
- You overstock (as you can’t forecast your requirements).
- You struggle to – or can’t – meet peaks in demand.
- You always seem to be lacking in space.
- You consistently have to throw packaging away (as it is dirty, damaged or obsolete)
The remainder of this guide provides further insight into identifying if your business is affected by any of these (it is not always obvious) and how using a VMI can help.
Packaging stock shortages
You frequently run out of packaging
Running out of packaging can have many consequences, varying in significance.
For example, running out of a specific box may mean you need to halt production – you literally don’t have anywhere to put the finished products. At the other end of the scale, you are likely to be losing out on sales and revenue if you don’t have the proper packaging to ship items.
Running out of certain lines occasionally can arguably be a success in some cases (your sales and marketing is creating demand for your products). However, ensuring this does not lead to missed sales and annoyed customers in the longer term is essential.
If you are not using a VMI and are consistently running out of certain packaging lines, then now may be the time to consider a setup of this type. Your packaging vendor is responsible for stock levels and, holding agreed stock themselves, this allows for shorter lead times if you do find yourself lacking.
Discrepancies in packaging supplies
You have discrepancies between the packaging you purchase and use
When conducting stock checks – either those performed regularly or larger, year-end audits – do you ensure the amount of packaging purchased tallies with the amount of packaging you have used?
Whilst there may always be some mitigating factors – such as packaging damaged in storage, for example – if there is a significant difference between the figures, then it is likely you have issues tracking and monitoring your packaging stocks.
This issue, in turn, can exacerbate problems of running out of packaging stocks and potentially lead to forecasting issues.
With a vendor-managed inventory, these figures can often be supplied to you by your packaging supplier. Even basic statistics can also help to highlight any potential issues – for example, excess packaging stock being damaged or even stolen (unlikely, but it does happen).
Ultimately, this can help you reduce your business’ costs.
No visibility of stock levels
You don't know how much packaging you have (or use)
Do you even know how much packaging stock you have? Or how much you use?
If this is the case, you must take advantage of vendor-managed inventory.
As well as your packaging supplier providing you with all these figures, there is the chance that doing so highlights some uncomfortable truths (which you can then work to resolve).
You can see how much working capital you have tied up in your packaging. You can ascertain the slower-moving lines that you can order less frequently. It can highlight the potential for rationalising (effectively combining) similar lines.
It can even help you make an informed decision regarding longer-term and strategic goals for your business, manufacturing processes and even your wider supply chain.
Manually counting your packaging
Too much manual counting of stock
Another sign that you could benefit from a VMI for your packaging is if you spend (or waste) a significant amount of time manually counting your stock.
Whilst this may be useful occasionally if you rely on manual counting for stock checking, forecasting and planning, you are not making efficient use of your time. There is also an increased chance of errors and mistakes creeping into your figures.
A VMI not only helps to alleviate this by closely monitoring stock used and required but combining it with a just-in-time supply agreement – whereby you only take delivery of enough stock to last a couple of days – makes it virtually irrelevant.
Smaller, more frequent deliveries used for a Just-in-Time service have several other benefits, including reducing storage space required and allowing for shorter lead times.
Over-stocking of packaging
You consistently overstock (as you can't forecast)
With problems such as running out of stock or not knowing how much packaging you use), the standard response is to overstock your warehouse.
And whilst this does help to mitigate the effects of these issues, it creates several problems all of its own.
For starters, it means you have increased overheads for storing your packaging. It also raises the risk that your slower-moving packaging lines become dusty, dirty, damaged or – even worse – completely obsolete (i.e. you don’t even make the specific products anymore).
Besides this, it also means you have more working capital than necessary tied up in packaging stock. Cash that your business could use to drive improvements in other areas or simply increase profitability.
Again, a vendor-managed packaging inventory allows for manufacturing a practical level of packaging to be held in stock, with your business calling of just what it needs as and when it is required.
Packaging demand peaks
You can't meet peaks in demand
Even if you overstock, if you find that you are struggling to meet peaks in demand – such as sales periods, Black Friday or even the peak season packaging demand leading up to the Christmas period – then this is another sign that a VMI would benefit your company.
Not having enough packaging to fulfil orders ultimately means you lose sales. It can also mean annoying (and losing) customers who have already placed orders but now have a delay in receiving their items.
A VMI puts the onus on your packaging provider to adequately plan for peaks (and troughs) in demand. Plus, with agreed stock in place, lead times are vastly reduced. Shorter lead times mean you can also accommodate any unexpected spikes (such as positive TV or social media coverage).
In essence, the full responsibility for maintaining a suitable flow of packaging belongs to your packaging provider.
Always struggling for space
Perhaps the most obvious sign your business is crying out for a vendor-managed inventory service is if you are constantly struggling for space. A lack of space often means you have too much stock.
Whilst small premises that your business has outgrown can also be a factor, even if this is the case, it is all the more reason to tightly control and minimise the amount of packaging inventory you keep on site.
The inverse of this is true also.
Even if you feel you have adequate space for a lot of packaging on-site, what else could you use this space for? Holding additional stock of finished products? Expanding production? Improving the safety and efficiency of your warehouse?
It may even be possible to positively impact your bottom line by relinquishing the space and reducing your overheads (utilities, business rates, rent etc.).
Throwing packaging away (that is dirty or damaged)
Finally, if you are keeping a large amount of packaging on site, then it increases the potential for wastage.
This problem is particularly true of slow-moving lines, which may sit around for months or even years without being used. And when you do finally go to use them, they can often be so damp, faded or covered in dust that they are unusable anyhow.
A vendor-managed inventory gets around this by using flexible packaging manufacturing schedules to ensure that, whilst an agreed level of stock is always maintained, this is never excessive and is constantly replenished.
Throwing away packaging that has become damaged or unusable whilst in storage is a strong signal that a vendor-managed inventory could help your business.
Should you switch to a vendor-managed inventory (VMI) for your packaging?
If any of these factors sound familiar to you, then a vendor-managed inventory for your packaging could significantly impact your business.
Agree that it sounds interesting, but not sure where to start?
Please don’t hesitate to contact one of the packaging experts at GWP Group. With more than 25 years of experience in providing VMI and just-in-time packaging to companies like yours, you can obtain free guidance and impartial advice on whether such a service would be a good fit for your business.
GWP also has a number of other resources available covering vendor-managed inventory for packaging, so please check these out if you are looking for further information.