How you structure your specialty oil supply chain has a huge impact on your bottom line, and pricing is only one factor of many.
Other factors that most purchasers know to look for include experience, reliability, relevant certifications, and product availability, all of which can affect actual cost.
But some buyers have thinner margins (of profit and of error). For these companies, more flexibility in contract arrangements is of value.
One way to achieve that flexibility is through vendor-managed inventory (VMI).
VMI for Oil Supply Chain Management
In a VMI system, the oil supplier takes responsibility for maintaining inventory levels of the customer’s tank. Customers purchase product only as they use it rather than when it is stocked.
This is how it works:
- Supplier and buyer work closely together to discuss optimal inventory levels, usage forecasts, and billing structure.
- An automatic gauging system on the customer’s tank indicates the level of stock. The vendor monitors this and restocks often enough to optimize inventory.
- Capital is not tied up in inventory, so payments are made based directly on usage and covered by income from the corresponding sales.
Is VMI a Good Option for Your Business?
Let’s explore why this is appealing to some businesses, and why it might not be.
Reasons to opt for VMI:
- It simplifies inventory management, and forgetting to order is no longer a risk.
- Your unused inventory cost is essentially zero.
- Timing of usage payment can be flexible according to your needs.
Reasons you may not want VMI:
- You have staff coverage to manage inventory.
- You prefer to purchase and own all the stock in your tank upon delivery.
- You’re unsure whether you can trust your vendor to monitor inventory closely and respond quickly.
- In a rising market, you may prefer to pre-purchase inventory at current prices.
- In a falling market, you may prefer to closely manage inventory with skinnier targets to allow for deferred purchasing at lower future prices.
Putting VMI for Oil Supply Chains in Context
The availability of a VMI option is not the first or most important factor to consider. Purchasers want partners they can trust to help them contain their oil supply chain costs in several other ways. Some of these methods include:
1. Limiting price fluctuations.
A good partner will resist raising prices until unavoidable to keep product pricing as competitive as possible. In addition, they’ll have the experience to properly forecast market downturns and sustain contractual pricing reductions.
2. Investment in certifications.
Certifications such as ISO-9001 (and those built on its foundation), SQF (Safe Quality Food), and REACH are not primarily industry requirements. Rather, they extend value to customers by ensuring consistent quality and safe, efficient product handling.
3. Supply security.
Trust and cost containment go hand-in-hand, particularly when it comes to the ready availability of specialty oil products. Deep inventories at multiple supply points help ensure supply security during major supply interruption events, avoiding costly delays.
What matters most is that you work with specialty oil suppliers you can trust to handle an option like VMI responsibly based on these and other factors. It all amounts to what matters most: trust.
Explore VMI in Your Specialty Oil Supply Chain with Renkert Oil
After nearly 40 years in business, we’ve come to serve large companies with their specialty oil needs. But we’re also a small business still serving small businesses flexibly.
We understand thin margins and pressures to find creative ways to help you contain costs. It’s always our hope that we can find a way to help with mineral oil costs before drastic measures, such as workforce reductions, are necessary.
That’s why we offer vendor-managed inventory to select customers. While it’s not a cure-all for financial pressures, it can help when the budget is tight.
Reach out to discuss whether VMI from Renkert Oil is right for your business.