Do you purchase expendable and consumable material from international partners?
If you're like most airlines, MROs, lessors and militaries we work with, your answer is…YES! Duh!
By sourcing material from overseas partners, you’re trying to control total material costs and increase reliability. Let’s hope that’s the reason.
When sourcing and purchasing material, a key factor that should be monitored more closely is your logistics management. This area covers everything related to the procurement, transport, transshipment, and storage of your material.
What’s the total cost of getting all your material needs to your warehouse? Dig into this number a bit and you may find yourself falling out of your chair.
Depending on the material, it’s not uncommon to see logistic costs account from 5% to 50% of your total PO amount.
Freight is expensive.
This is why we focus deeply on managing inventory for our clients and reducing their freight costs through a systematic approach.
When you use a Vendor Managed Inventory there are 5 critical ways it’ll dramatically reduce your freight costs.
Let’s call it free money!
1) Each shipment is consolidated with other replenishment material
You don’t have to worry about buying a $1 gasket from UAE and a bolt from the U.K. This buying mindset, outside of freight is madness, but the point is, you begin streamlining your shipments.
When you place your high consumption items into a vendor managed inventory you’ll get consolidated weekly or monthly shipments. By consolidating material prior to when you need them, you can cut your freight cost by 50% to 90%.
2) Your inventory is automatically replenished
This benefit doesn’t affect freight cost directly but it does affect your time dealing and scheduling freight activities. It’s a processing cost and something Skylink ruthlessly tries to lower in our Total Value System.
A vendor managed inventory solution automatically replenishes your material as you hit minimum stock levels. The shipments are consolidated and delivered.
You don’t have to coordinate shipping, you won’t have to track AWBs, the material just arrives, on time and as needed.
3) You’ll get better freight cost visibility
As your material hits minimum stock levels, you’ll see when you have an upcoming weekly or monthly consolidation shipment.
You’ll see the incoming material and can plan cost accordingly. You can even send a quick freight cost report to your CFO…just for brownie points!
When you have better visibility into what your cost will be, you have a better planning tool. This directly impacts how your operation allocates funds and plans cash flow.
4) Reduce the costly AOG freight
AOG freight costs are crazy expensive.
We had a client who became AOG for 5 engine bolts. Yes, bolts!
In order to get these bolts to them the next day, we had to hand carry them on a flight. The cost? $11,000.
This scenario doesn’t happen daily but imagine the expedited freight costs you pay to have items at your facility as soon as possible. It’s expensive.
With a vendor managed inventory everything is pre-planned. It doesn’t resolve everything or eliminate all chances of issues but it does anticipate demand patterns and adds a certain level of safety stock to reduce the possibility of AOGs.
5) Eliminate logistics errors
The more you ship, the more you risk items being shipped to the wrong place, getting stuck in customs, getting lost, not shipping at all, as well as an infinite amount of other issues.
Put a cost on it. Whether it happens once a month or once a week it costs your operation time and money. And time is money.
When you place your items in a vendor managed inventory program, material is consolidated, the number of shipments is reduced and your chances of logistical problems goes down.
The moral of the freight story is, look at how much you’re spending on freight, you may be surprised at what it’s costing your operation.
Then really think about putting your high consumption expendables and consumables into a vendor managed inventory program.
When you do, watch your freight costs plummet.