Reduced Inventory

• Reduced inventory. A well-executed supply chain management system means that customers receive

orders when they need them. Further, this does not necessarily imply that the supplier will be holding the

inventory for the customer—although that might occur. It refers to the fact that better communication and

better scheduling may enable the supplier to produce the item exactly when it is needed.

• Improvement in the order accuracy. Supply chain management should guarantee that when orders

are shipped, the right items are shipped in the right quantity. This does not disrupt the production of the

customer and eliminates product returns, which results in economic benefits for both the customer and

the supplier.

• Reduced cycle time for product development. To ensure success, the customer and the supplier

must develop new levels of trust. This trust will evolve into a long-term relationship. Both parties begin to

know each other better, including each other’s needs and capabilities. As this evolves, the supplier is in a

better position to help the customer develop new products far more rapidly. It greatly reduces the product

cycle time.

• Financial benefits. These value improvements all translate into significant cost savings. Cost savings

experienced by the supplier can be transferred into cost savings for the customer. Relatively modest

improvements in inventory reduction, reduced safety stock size, reduce stockouts, improved order fill

rates, and reduced transit time can yield surprisingly large financial benefits to both parties.

• Peace of mind. Having a supplier that one can trust to accurately deliver items in a timely low-cost

fashion, which has also developed contingency plans to cope with potential problems, is relatively unique

and provides the customer with a high level of comfort. One may be unable to place an economic price on

such peace of mind.