Managed Packaging Inventory.
7 clear signs that your business should outsource management of your packaging
Does your business frequently – or even 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 just wish someone would take care of your packaging inventory for you?
If any of the above sounds familiar, then the chances are your business would benefit from implementing a vendor managed inventory (VMI) for your packaging.
In fact, there are seven tell-tale signs that your business could see a significant improvement in performance and efficiency (and usually costs) from using a managed inventory service. This guides highlights these signs, helping you to decide if such a service could be implemented at your warehouse, and is right for your business.
01: What is a VMI?
Definition of a vendor managed inventory
OK, first things first. What is a VMI?
A vendor managed packaging inventory is effectively what it says on the tin.
Your packaging vendor – your supplier – will manage to stock levels, production and supply of your entire packaging requirement. This is then usually delivered on a just in time (JIT) basis.
This can have a number of wide ranging benefits for your operations.
Firstly, it can help reduce the amount of storage space required for packaging at your business. This can result in reduced warehousing costs, as well as potentially freeing 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.
All of this is complemented by reduced admin and paperwork, and can ultimately make your packaging supply much more streamlined and slick.
02: 7 Signs you need a VMI
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 with a certain level of packaging usage to consider moving to a VMI agreement, there are a number of issues that business can experience which can only be alleviated 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 packaging purchased / 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 cant – meet peaks in demand
You always seem to be struggling for space
You consistently have to throw packaging away (dirty / damaged / obsolete)
The remainder of this guide provides further insight into how to spot of your business is affected by any of these (it is not always obvious), and how using a VMI can help.
03: Stock Shortages.
You frequently run out of packaging
Running out of packaging can have a number of consequences, all of which vary in significance.
For example, running out of a specific box may mean that you need to halt production – you literally don’t have anywhere to put the finished products. On the other end of the scale, if you don’t have the correct packaging to ship items then most likely you will be losing out on sales and revenue.
So whilst running out of certain lines on occasion can arguably be seen as a success in some cases (your sales and marketing is creating demand for your products), in the longer term it is important to ensure this does not lead to missed sales and annoyed customers.
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 will be responsible for stock levels and, holding agreed stock themselves, will allow for shorter lead times if you do find yourself short.
You have discrepancies between packaging purchased / used
When conducting stock checks – either those performed on a regular basis 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 large difference between the figures then it is likely you have issues tracking and monitoring your packaging stocks.
This in turn can feed back in to point one, and can potentially lead to issues with forecasting and running out of stock.
With a vendor managed inventory these figures can often be supplied to you by your packaging supplier. This 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 the costs to your business.
05: No Visibility.
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 most certainly need to 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 will highlight 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 which are your slower moving lines that need to be ordered less frequently. It can highlight potential for rationalising (effectively combining) similar lines.
It can even help you make informed decision regarding longer term / strategic goals for your business, manufacturing processes and even your wider supply chain.
06: Manual Counting.
Too much manual counting
Another sign that you could benefit from a VMI for your packaging is if you spend (or waste) a large amount of time manually counting your stock.
Whilst this may be useful on occasion, if you rely on manual counting for stock checking, forecasting and planning then you are not making efficient use of your time. There is also increased chance of errors and mistakes creeping into your figures.
A VMI not only helps to alleviate this through 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 any way.
Smaller, more frequent deliveries used for a Just in Time service have a number of other benefits too, not least reducing storage space required and allowing for shorter lead times.
You consistently overstock (as you can't forecast)
With many of the problems listed above (such as running out of stock, or not knowing how much packaging you use), the standard response is to simply overstock your warehouse.
And whilst this does help to mitigate the effects of these issues, it creates a number of problems all of its own.
For starters, it means you have increased overheads for the storage of 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 any more).
Besides all of this, it also means you have more working capital than necessary tied up in packaging stock. Cash that could be used for driving improvements in other areas of your business, or simply increasing profitability.
Again, a vendor managed packaging inventory will allow for a sensible level of packaging to be manufactured and held in stock, with your business calling of just what it needs as and when it is needed.
08: 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 – think sales periods, black Friday or even 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 miss out on 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 meaning any unexpected spikes (such as positive TV or social media coverage) can be accommodated too.
In essence, the full responsibility for maintaining a suitable flow of packaging will belong to your packaging provider.
09: Space Shortage.
Always struggling for space
Perhaps the most obvious of all the signs your business is crying out for a vendor managed inventory service, if you are always struggling for space then you likely have too much stock.
Whilst a 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 this space be used? Holding additional stock of finished products? Expanding production? Improving the safety and efficiency of warehouse?
It may even be possible to make an impact on your bottom line through relinquishing the space and reducing your overheads (utilities, business rates, rent etc.).
10: Wasted Packaging.
Throwing packaging away (dirty / damaged)
Finally, if you are keeping a large amount of packaging on site, then it increases the potential for wastage.
This 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 anyway.
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 therefore a key sign that a vendor managed inventory could help your business.
11: In Summary.
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 make a significant impact on your business.
Agree that it sounds interesting, but don’t know where to start?
Please don’t hesitate to contact us here at GWP Group – we have more than 25 years’ experience in providing VMI and just in time packaging to businesses just like yours, and will be happy to offer free guidance and impartial advice on whether such as service would be a good fit for your business.
We also have a number of other resources available covering the topic of vendor managed inventory for packaging, so please check these out if you are looking for further information.
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