Outsource Supplier Management System for Inventory Cost Reduction
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Solution Overview
Problem
Traditional inventory distribution systems incur high carrying costs and introduce complexity in transactions between buyers, sellers, and suppliers, as they require sellers to maintain large inventories while delivering products directly to customers, which is costly and inefficient.
Innovation Solution
A system and method for outsource supplier management that automates order processing, allows direct shipping from suppliers to customers, and facilitates changes and returns, using electronic data interchange (EDI) messages for communication between customers, sellers, and outsource suppliers, enabling efficient order management and minimizing costs.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If sellers maintain large inventories to deliver products as needed, then delivery capability is improved, but inventory carrying costs increase
Solution Approach 1:
The patent extracts the inventory holding function from the seller and transfers it to the outsource supplier. The seller no longer maintains large inventories but instead relies on the outsource supplier to hold stock and fulfill orders, thereby eliminating the seller's inventory carrying costs while maintaining delivery capability.
Solution Approach 2:
The outsource supplier acts as an intermediary between the seller and the customer. This intermediary entity holds the inventory and manages the supply chain, allowing the seller to focus on sales while the supplier handles inventory management and fulfillment, thus resolving the contradiction between delivery capability and carrying costs.
2Productivity
If sellers use traditional inventory systems to deliver products, then order fulfillment is improved, but transaction complexity increases
Solution Approach 1:
The patent extracts the inventory management and fulfillment operations from the seller's traditional system and relocates them to the outsource supplier. This separation simplifies the seller's transactions while maintaining order fulfillment capability, as the supplier handles the complex inventory coordination independently.
Solution Approach 2:
The outsource supplier operates as an independent entity that manages its own inventory and fulfillment processes. This self-service approach allows the supplier to handle complex transactions autonomously, reducing the complexity of interactions between the seller and customer while maintaining efficient order fulfillment.
3Loss of energy
If outsource suppliers hold inventory directly, then inventory costs are reduced, but system complexity increases
Solution Approach 1:
The outsource supplier serves as a specialized intermediary that manages inventory holding and fulfillment operations. This intermediary role is designed to handle the complexity of coordinating between sellers and customers while maintaining cost efficiency, as the supplier's expertise in supply chain management offsets the increased system complexity.
Solution Approach 2:
The outsource supplier performs multiple functions including inventory holding, order fulfillment, and supply chain coordination within a single integrated system. This multi-functionality allows the supplier to manage complex transactions efficiently while maintaining cost advantages, as one entity handles what would otherwise require multiple separate processes and stakeholders.
Data Source
AI summary
A system and method for is provided for outsource supplier management that facilitates improved order communication between customers, sellers and outsource suppliers. During order processing the supplier management system automatically receives the order from the customer and passes the order to the outsource supplier along with order, material and shipping parameters. The outsource supplier ships the product directly to the customer using the parameters provided with the order. When the product is shipped from the outsource supplier, shipment data is sent from the outsource supplier to the seller. The seller virtually receives the parts in the seller's inventory, and creates an invoice to pay the outsource supplier. The original order from the customer is matched with the virtual inventory and the product is virtually shipped from the seller to the customer. The customer is then invoiced by the seller or outsource supplier depending on customer requirements.