Smart-Purchasing.com: Best Practices: Checklist

Best Practices: Logistics
Push Suppliers To Manage Inventory

Traditional	Best Practice
Buyers take control of and manage inventory in a warehouse, port of entry, or other receiving location long before the product is needed. Buyers incur all costs associated with inventory management.	Supplier manages inventory all the way to the point of use.

Rationale
Allows buyer to concentrate on core activities and save money. “Most buyers find that lower inventory levels force them to fine-tune processing steps, and open up more possibilities for savings.” -- Purchasing Magazine. If the buyer has a greater purchasing power and logistics expertise than the supplier, this practice may not be advisable.
Details
A large electric utility company takes ownership of the inventory of the electric cable at the point of use. Utility provides its supplier with a 60-90 day outlook, and a 5-10 day forecast of anticipated need. Supplier delivers the cable 2-5 days prior to installation. In addition, the utility keeps a safety stock of cable on consignment, and pays for it only when the cable is actually used.

Best Practice | Case Study | Commentary