March 07, 2006
Keep Vendors Happy, Keep Inventory Low
When you get down to it, there are two main goals to inventory: keep the inventory levels low and the service level high. Past articles on this site explain these principles in more detail including mathematical principles detailing how to find the optimum balance of service level and inventory levels for your company
A large contributor to keeping inventory low and service high is the lead time for specific materials. If you can obtain more stock quickly, you can order in a hurry if you need to. Although there are many ways to keep lead times low, failure to keep vendors happy is a quick way to keep lead times high. Higher lead times means higher inventory, means more money thrown out the window to holding costs.
Pay your bills
For the same reasons you want to take care of your reliably paying customers first, your vendors want to take care of their reliable customers first. If this can be you, you can expect your lead times to drop and potentially receive discounts from your suppliers. Most suppliers have good customers and bad customers. The good ones should be rewarded.
If you don't pay your bills, you might have to switch suppliers fairly frequently. This can very substantially raise your lead times and results in switching costs. In the short-run it may seem simpler to blow off a few bills, but believe me, unpaid bills are not worth the headache. In addition to inventory level issues, unpaid bills can be a nightmare for an accounting department dealing with collection calls. If you can't pay them, work with your vendors. Whatever you do, keep your suppliers happy.
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