Managing Vendor Supplied and Customer Supplied Inventory
Customer or vendor consignment and outsourcing of labor are difficult to manage. You have to keep track of separate inventories, track costs, and designate material for work orders. We’ve seen an uptick of both these practices in our customer base, as well as in companies we’ve talked to looking for a manufacturing ERP. Consignment helps manage inventory and long lead times, protects production schedules, and helps control cost.
So, what are customer and vendor consignment? Customer consignment is useful for your customer to better manage the full supply chain and costs of production of their goods. Vendor consignment programs store the inventory in your warehouse to be consumed in production, but you do not own and are not billed until you consume it. Cetec ERP has features designed to help you see your customer supplied and vendor supplied components on your waterfall and MRP.
A part is vendor supplied if you have an outsource manufacturer that provides a raw material for the finished product. They bill you for what they use on your orders, but the vendor is responsible for this specific raw material. You need to be able to show material cost and track the BOM, both per contractual requirements with your customer and for traceability.
Customer and Vendor supplied tags can also be used for Consignment, a common supply chain tactic that shortens lead time and reduces material shortage. These flags help to track and report on consumption of consignment inventory. Consumer consignment occurs in two instances. Either your customer sends you inventory to store and be consumed only for their orders, or you store inventory at your customer’s warehouse by shipping it there and only invoice them when the customer consumes it.
Customer consignment is more prevalent. Your customer gives you raw components and material inventory to consume for their orders. They source the material by buying or producing it, and stock it for you. This means you have it on hand ready to use at any point, foregoing lead time headaches and helping to ensure promise dates, and potentially cutting costs for both you and the customer due to lower overhead on both sides.
Vendor consignment is slightly less common. In this case, a vendor stores inventory at your warehouse but still owns it until you consume it. After you consume the material, your vendor will send an invoice, so you need to be able to reconcile and report on consumption of this inventory.
There are multiple places in Cetec ERP that you can mark a component as customer or vendor supplied inventory. This can be done on the permanent BOM or your tempBOM as shown below.
Once you’ve marked a part customer supplied, it shows up on your MRP report. This helps you know if the customer-supplied component is short or late, so you can communicate back to your customer. The demand also shows up on the part’s waterfall, so that you can keep track of demand and communicate effectively and avoid a part shortage.
Once a part is marked as vendor supplied, you will need to turn on the configuration setting “Waterfall - Include Vendor Supplied Component” in order for the marked parts to show up on the waterfall. Tracking your vendor supplied parts via the waterfall will allow you to see that while you don’t need to purchase it, you need to manage your vendor on this component.
Customer consignment and outsourcing of labor are becoming increasingly popular practices for managing inventory, controlling costs, and protecting production schedules. With the right manufacturing ERP in place to manage these processes efficiently and effectively, businesses can benefit from increased efficiency while still maintaining control over their operations. If you’re considering implementing a consignment or outsourcing strategy for your business, Cetec ERP is here to help.
To learn more uses for Vendor and Customer supplied markers and how to utilize them with Cetec ERP, check out video guide here.