Contract Manufacturers Boost Desirability to OEMs by Using IoT for Collaborative Inventory Management

Inventory liability is one of those make-or-break issues between contract manufacturers and OEMs that usually only comes to light once it’s too late, such as in times of crisis. It is a topic that is often skimmed over in times of peace and market stability. Understanding and reducing inventory exposure risks should be a priority task for CMs and OEMs alike, and clarifications on the topic should be made pointedly before ever starting a contract. However, especially among small OEMs, moving from forecasted data into a real-world inventory plan that leaves no one unduly exposed to major risk can be a daunting task, and many OEMs simply pass along their forecasts to their CMs.

However, when a crisis comes to pass that impacts supply chains, an overflow of parts that would have “normally” been used becomes a major source of contention—whose responsibility are they?

With a strategic plan for inventory liability, OEMs and CMs can agree ahead of time on which parts are considered unique to the OEMs product, the inventory liability triggers that will spur action, and a plan for reporting issues in a timely fashion.

Even with the best of intentions and plans, supply chains can break down rapidly, as we saw during the beginning of the COVID-19 pandemic. Manual back and forth reporting is likely to become a bottleneck, even if the CM and OEM both have low-latency data predictions within their respective organizations. Involving anyone further up or down the supply chain in this process slows it until it is basically untenable. The market changes too quickly for this form of archaic collaboration to be effective.

However, using collaborative inventory management techniques with key players within a supply chain leaves everyone involved running more smoothly with more accurate information and a deeper sense of stability that keeps supply chains from being further stressed and prices from skyrocketing.

What Is Collaborative Inventory Management?

Collaborative inventory management is a process by which businesses share inventory data automatically in near-to-real-time. Inventory counts in this system can include stock across different sites, warehouses, and even in transit across multiple relevant supply tiers.

How CIM Serves As A Strategic Differentiator For Contract Manufacturers

Contract manufacturers that use CIM increase their desirability by offering benefits to nearly all relevant facets of a CM-OEM relationship. Collaborative inventory management results in higher speed data sharing so everyone involved makes better strategic decisions based on up-to-date information, patterns that could indicate potential impending risk (such as a major fluctuation in demand or a supply shortage) can become clear further ahead of time, giving each business a better chance to prepare.

When utilized with machine learning, CIM can work to automatically resolve supply shortages as well as open collaboration toward shortage resolutions directly between the CM and the supplier, without the need for the OEM as a middleman. Collaborative inventory management also serves to lower carrying costs and reduce the risk of obsolescence. Notable inventory reductions, reduced cycle times, and increased visibility mean more working capital and greater agility for businesses involved.

Using CIM makes inventory liability a far less likely occurrence thanks to predictive capabilities and subsequent right-sizing. What-if scenario planning can still simulate best- and worst-case scenarios across multiple supply tiers to help guide discussions on inventory liability. CIM is a strategic benefit for everyone involved in the process.

What Role Does IoT Play In Collaborative Inventory Management?

Industrial IoT devices help to collect the data used in a collaborative inventory management system. IoT sensors can offer real-time production stats based on current working conditions to offer deeper granularity to inventory data. They can also be used to track inventory in transit. IoT edge devices help translate between local protocols and the “language” of the Cloud so that contract manufacturers are able to effectively, securely, and automatically share relevant inventory data with CIM partners. Similarly, algorithms that are run using computing power on the Cloud can offer additional insights to hone strategies both individually and collaboratively among members of the CIM system. IoT sensors can also assist with tracking inventory numbers within a warehouse or hub.

In some cases where automation is used within CIM, actuators within an IoT network may be subject to automatic triggers such as “Stop production using part XYZ, when minimum inventory level is reached” or basically any other iteration of this type of command. IoT serves as the hands, the brain, and the mail carrier for collaborative inventory networks among OEMs, contract manufacturers, and relevant suppliers.

MachineMetrics is an industrial IoT platform that helps contract manufacturers collect data from any machine, analyze that data using edge computing, send it to the cloud for deeper analysis, generate digital twins of your factory floor, manage all of your assets, use predictive maintenance models to reduce your downtime, optimize all your processes in order of highest priority, keep your workers safe and happy, and so much more—all with a simple, color-coded dashboard that you can access anywhere. Book your demo today.