Collaborative Supply Chains with Co-Managed Inventory

Managing inventory effectively is a challenge. Holding too much stock increases costs, while running out risks losing sales. Co-managed inventory (CMI) offers a solution by sharing responsibility between suppliers and buyers.

Here’s why CMI stands out:

• Shared Responsibility: Suppliers and buyers collaborate on inventory planning, monitoring, and restocking.
• Real-Time Data: Cloud platforms and tools like EDI improve transparency and decision-making.
• Cost Savings: Businesses can reduce inventory costs by up to 30%.
• Improved Efficiency: Faster restocking and fewer stockouts help maintain high service levels, like a 98% in-stock rate in retail.

Unlike traditional inventory management, where buyers handle everything, CMI fosters collaboration, reduces risks, and aligns inventory with actual demand. Tools and partnerships with logistics providers make this approach practical and effective.

Bottom Line: CMI reshapes supply chain strategies, delivering better outcomes for both buyers and suppliers by combining shared responsibility with real-time data.

1. Traditional Inventory Management

Decision Rights

In a traditional inventory management setup, the customer - whether a retailer or manufacturer - takes full responsibility for inventory decisions. They handle everything: tracking stock levels, forecasting demand, and deciding when to reorder. As Abby Jenkins, Product Marketing Manager at NetSuite, puts it:

"In a conventional setup, the customer, such as a retailer or a manufacturer, is responsible for monitoring its own inventory levels and placing orders with vendors when stock reaches a predetermined reorder point".

Suppliers, on the other hand, simply respond to purchase orders. They play no active role in planning or replenishment. This reactive approach often leads to challenges, particularly in terms of data transparency and financial risk.

Data Visibility

Traditional systems offer very little in terms of information sharing. Suppliers only know what they've shipped and when, leaving them in the dark about how much inventory the customer actually has or how quickly it’s being used. Franz Josef Fecke, Solutions Consultant at Aptean i-Supply, explains this gap:

"From the supplier's perspective, awareness of quantities shipped and certain delivery patterns does not imply knowledge of the actual consumption patterns or inventory levels of products on the customer's (manufacturer's) sites".

Because real-time data isn’t available, both parties often rely on phone calls and emails to get updates on stock levels. This outdated approach slows down decision-making and forces businesses to maintain buffer stocks as a precaution. While these extra supplies may prevent stockouts, they also tie up cash in inventory that might never be used.

Financial Implications

The financial impact of traditional inventory management is significant. Customers shoulder the entire burden, owning the inventory, covering storage costs, and absorbing carrying expenses. To avoid running out of stock, they often keep high safety stock levels, which locks up working capital that could otherwise be used for growth or other business priorities.

A stark example of this vulnerability came during the pandemic. Between February 2020 and June 2021, U.S. retailers saw their inventory holdings drop from 43 days to just 33 days, exposing the fragility of traditional systems when faced with sudden market changes. On top of that, the administrative workload is heavy - manual planning, constant stock monitoring, and processing individual purchase orders all require dedicated resources.

Risk and Service Level Outcomes

In these setups, the customer takes on all the risks tied to inventory. Stockouts lead to missed sales and unhappy customers, while overstocking can result in wasted inventory, especially for items with a short shelf life or those prone to theft or damage. Without real-time visibility, maintaining a balance between high service levels and lean inventory becomes a major challenge.

These limitations highlight the need for more collaborative supply chain models. By sharing responsibility and risk, such approaches can address the inefficiencies of traditional inventory management and deliver better outcomes for all parties involved.

2. Co-Managed Inventory Systems

Decision Rights

Co-managed inventory changes the way decisions are made. Instead of the customer handling every choice on their own, it introduces a collaborative process where both the customer and supplier work together. While the customer still has the final say, the supplier takes on a more active role. They don’t just fulfill orders but also provide tools like real-time data, scanning systems, and automation to streamline reorder decisions.

This partnership allows customers to maintain control and ownership of their inventory while benefiting from informed decisions based on up-to-date data. The result is a shift from reactive ordering to a more seamless, continuous replenishment process. This shared decision-making also brings real-time transparency into daily operations.

Data Visibility

One of the standout features of co-managed inventory is the real-time visibility it creates across the supply chain. Suppliers gain access to accurate consumption data and inventory levels at the customer’s site, while customers can monitor supplier inventory and production schedules. This two-way transparency is often powered by cloud platforms with role-based access, providing a unified view of operations. Such coordination can reduce inventory costs by up to 30%.

Additionally, having real-time data enables suppliers to quickly adjust production and delivery schedules to meet sudden changes in demand. This level of visibility ensures smoother supply chain operations and better alignment between supply and demand.

Financial Implications

In a co-managed system, the customer remains responsible for inventory ownership and holding costs but gains more flexibility in pricing negotiations and stock management to fit their cash flow needs. Abby Jenkins, Product Marketing Manager at NetSuite, highlights this balance:

"CMI allows businesses to maintain greater control over their stock levels and inventory management processes. Naturally, though, it comes with all the administrative and cost burdens of owning and managing inventory".

While customers still carry storage and carrying costs, aligning inventory with actual demand improves cash flow and boosts inventory turnover. Monitoring metrics like inventory turns, stockout rates, and order fill rates is critical to ensure the system delivers measurable benefits.

Risk and Service Level Outcomes

Co-managed inventory also helps redistribute risk in smarter ways. Although customers still face risks like obsolescence and market shifts, the improved tools and data make these risks easier to manage. Real-time communication ensures companies can maintain lean inventory levels without sacrificing service quality. This balance helps businesses keep stock levels optimized without overburdening their operations.

For companies managing intricate supply chains in the United States, collaborating with experienced logistics providers - such as JIT Transportation, which specializes in vendor-managed inventory services and ERP integration - can simplify processes. These providers enhance real-time data sharing and automate replenishment, making supply chain management more efficient.

MSC Industrial Supply Co. - ControlPoint Inventory Management Solutions

sbb-itb-eafa320

Advantages and Disadvantages

Let’s dive deeper into how traditional and co-managed inventory systems stack up against each other. These two approaches balance trade-offs between inventory control, working capital, and responsiveness.

Traditional inventory management puts all decision-making power in the buyer’s hands. While this autonomy may seem appealing, it ties up large amounts of working capital and consumes valuable warehouse space. Additionally, without real-time data, coordination often relies on emails and phone calls, which can lead to inefficiencies. This lack of visibility increases the risk of the bullwhip effect - where small changes in demand ripple through the supply chain, amplifying fluctuations.

Co-managed inventory systems, on the other hand, shift the dynamic by encouraging collaboration and using real-time data for decision-making. This shared responsibility helps reduce inventory costs by as much as 30% and improves cash flow by aligning inventory levels more closely with actual demand. However, customers still retain ownership of the inventory, which can add administrative overhead. The table below highlights key operational differences:

Feature	Traditional Inventory Management	Co-Managed Inventory (CMI)
Decision Rights	Customer makes all decisions independently.	Shared responsibility; supplier tools support customer decision-making.
Data Visibility	Limited; depends on manual updates.	High; enabled by real-time data sharing via cloud platforms.
Financial Impact	High working capital tied up; customer bears all holding costs.	Lower inventory costs (up to 30%) and better cash flow, though inventory remains on the customer’s books.
Risk & Service Levels	Higher risk of stockouts, obsolescence, and bullwhip effect.	Fewer stockouts and proactive risk management due to greater transparency.

Real-world examples illustrate these differences. Take Walmart and Procter & Gamble’s partnership, which dates back to the late 1980s. They implemented a vendor-managed inventory (VMI) model where Procter & Gamble replenishes Walmart’s stock based on shared real-time data. This collaboration significantly reduced inventory costs and improved shelf availability, setting a gold standard for the industry. While this example highlights a VMI system, it demonstrates how collaborative inventory models - like co-managed systems - can enhance supply chain efficiency while still allowing customers to maintain control.

These comparisons and examples underscore the potential of collaborative inventory practices to optimize supply chains and improve overall performance.

Conclusion

Traditional supply chain methods, marked by isolated decision-making and limited visibility, often result in excess inventory and tied-up capital. By contrast, co-managed inventory systems - built on real-time data sharing and shared responsibility - can reduce inventory costs by up to 30% while speeding up replenishment processes. This approach shifts the focus from sporadic purchase orders to a seamless, continuous replenishment model, simplifying operations and improving efficiency. As Franz Josef Fecke, Solutions Consultant at Aptean i-Supply, puts it:

"Extending visibility beyond the intracompany supply chain and into each other's operations will create trust and improve collaboration".

Third-party logistics (3PL) providers are essential in making these systems work. They provide the technological backbone - like cloud-based platforms and Transportation Management Systems - that enables real-time data exchange between trading partners. Beyond technology, 3PLs bring the agility to adapt logistics strategies based on demand, consolidate shipments to cut costs, and optimize routing with live order visibility. These capabilities make 3PLs invaluable in advancing collaborative inventory management.

JIT Transportation takes this a step further with its vendor-managed inventory (VMI) solutions, ERP integration, and strategically located warehouses. These features allow businesses to respond quickly to changing demand patterns. Their value-added services, such as pick-and-pack operations and white glove handling, offer the flexibility needed to address demand shifts or bottlenecks flagged by co-managed inventory systems.

Looking ahead, the key to a more efficient supply chain lies in breaking down barriers and fostering trust between trading partners. Co-managed inventory systems lay the groundwork, technology ensures the necessary visibility, and experienced 3PL providers deliver the operational expertise to transform collaborative planning into measurable success.

FAQs

How does co-managed inventory enhance supply chain efficiency?

Co-managed inventory, often referred to as collaborative or vendor-managed inventory, creates a partnership where suppliers and businesses share real-time data on stock levels, demand trends, and shipments. This transparency helps both parties plan ahead, reducing the scramble to address shortages and making the supply chain more adaptable.

With better demand forecasting, co-managed inventory can cut down on inventory-holding costs and lessen the reliance on large safety stocks. It also helps prevent stock-outs and speeds up delivery times through automatic, demand-driven replenishment. By aligning goals between suppliers and buyers, this approach simplifies communication, reduces administrative work, and boosts service levels. The result? Businesses can keep products readily available while running operations more efficiently.

For companies in the U.S., teaming up with a logistics provider like JIT Transportation can take these benefits even further. JIT’s advanced tools and extensive nationwide network enable seamless data sharing and forecasting, helping to build a leaner, more dependable supply chain tailored specifically to the needs of American businesses.

How do cloud platforms enhance co-managed inventory systems?

Cloud platforms are at the heart of co-managed inventory systems, offering a real-time, collaborative space for businesses and suppliers to work together effortlessly. They act as a centralized hub for crucial data - like inventory levels, sales patterns, and safety stock - helping teams make informed decisions and avoid the inefficiencies of outdated or disconnected processes.

These platforms also take the hassle out of daily operations by automating key tasks such as replenishment requests, adjusting stock thresholds, and sharing analytics. Plus, their ability to scale supports advanced features like AI-powered forecasting, which can boost inventory turnover and reduce the risk of stockouts. For logistics providers such as JIT Transportation, adopting cloud-based tools means achieving full supply chain visibility, speeding up replenishment, and scaling operations during peak times - all without the need for extra hardware.

How can businesses effectively manage inventory while reducing costs in a co-managed inventory (CMI) model?

To strike the right balance between inventory control and cost savings in a co-managed inventory (CMI) model, businesses need to prioritize collaboration and data-driven strategies. In this setup, suppliers and buyers share responsibilities. For instance, manufacturers might take charge of replenishing standard items, while retailers handle inventory for promotional products. This approach lets each party focus on their strengths, cutting down on overstock and reducing unnecessary carrying costs.

Real-time data sharing plays a crucial role here. By exchanging information like point-of-sale data and demand forecasts, both sides can work together to set ideal inventory levels, adjust orders on the fly, and respond effectively to changing demand. Modern CMI tools make this process even smoother by automating replenishment, monitoring stock levels, and offering insights through metrics like inventory turnover and cost-to-serve. These tools help businesses maintain lean inventory without sacrificing product availability.

Teaming up with a reliable logistics provider, such as JIT Transportation, can add another layer of efficiency. Their fast, dependable delivery services and scalable infrastructure allow businesses to lower safety stock, cut waste, and build a supply chain that’s both cost-effective and aligned with customer needs.

Related Blog Posts

• What Is Vendor-Managed Inventory in 3PL?
• Best Practices for Inventory Control in 3PL Warehouses
• Building Freight Visibility into the Semiconductor Supply Chain
• How 3PLs Improve Inventory Forecasting Accuracy