Value Engineering

TermiKnowledge - Supply Chain, Procurement and Inventory Terminologies
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A comprehensive VSM for internal purchasing and procurement functions can create a streamlined and improved future condition. One-stop flow, or short-run volume reduction, can be established by establishing regional suppliers to help with consistent deliveries and flexible supply policies for shorter inbound shipping distances to better facilitate demand changes. These functions can be combined with an improved understanding of the warehouse infrastructure that supports our business and with a clearer view of the relationships that can be developed with suppliers for the purpose of reducing warehouse operation costs.

Many factors affect the cost of supply. Among these are the number of units produced per hour by the supplier; the rate at which the supplier processes orders and delivers the supplies to our production floor; the rate at which the supplier manages our order fulfillment and shipping procedures; and the amount of storage capacity needed to hold all of the inventory that a company must purchase to keep our sales level above our competitors. A VSM can examine all of these areas in order to determine the most efficient ways to manage our operations. We can then develop a standard method of contracting with each of our suppliers in order to assure that the supplies that we buy are always available. In addition, we can establish a VSM that specifies the maximum number of units that a supplier should process to meet our demand at any one time.

The increased efficiency results from a VSM that allows a company to contract with suppliers according to both their production and delivery times. By doing this, we reduce the risks associated with meeting a sudden demand for certain products. A VSM also enables us to better monitor the status of our inventory. This is because it provides information about how many units are available and how much of each unit is actually in use. This allows us to more accurately forecast our inventory needs and the amount of time it will take to fill those needs.

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