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Is Vendor Managed Inventory Past Its Prime?

By Brian Lindner, Marketing Director, Datalliance

When Procter & Gamble worked with Walmart in the 80’s to start its “Continuous Replenishment Program” it was the industry’s first practical implementation of what we now call Vendor Managed Inventory. This was truly a revolutionary approach for managing inventory that relied on trust between two partners. Inventory carrying costs are a huge factor in profitability and for a retailer or distributor to willingly hand over control of such a significant cost component seemed, at the time, outrageous and not likely to be adopted by any other trading partners. However the model worked and the benefits to both the manufacturer and the retailer or distributor have proven to be so compelling that to this day Vendor Managed Inventory (VMI) is still going strong. VMI spread to other players in the consumer package goods space and now manufacturers across multiple industries including plumbing, electrical, power transmission and heavy duty truck parts are currently working with their customers to effectively replenish their products to distribution centers, depots, stores and even down to the shelf level. So why are there still companies not participating in a Vendor Managed Inventory program?

Some companies – both manufacturers and distributors – believe that Vendor Managed Inventory is a thing of the past. In some cases, they had a bad experience in the 90’s when a few manufacturers took advantage of the relationship and dumped inventory on unsuspecting customers. These unethical practices left some companies swearing off VMI forever. In other instances, companies remember the dark ages of on-premise software and the cost and pain of having to manage their own servers, outdated software or worse yet, trying to manage a program using Excel spreadsheets.

Fortunately, VMI survived and is thriving. There is a resurgence of VMI with more and more manufacturers, distributors and retailers implementing vendor managed inventory programs to improve shelf availability, increase turns, reduce transportation costs, and improve collaboration.

The driving force is because VMI has come a long way since the early days. It is no longer just a supplier taking over responsibility for managing inventory for a customer. It is truly a collaborative program where both the supplier and distributor are working together to increase sales and help each other become profitable. With the addition of advanced capabilities VMI is helping companies manage their transportation costs by optimizing truck loads and even helping multiple manufactures in close proximity with each other to share trucks that are heading in the same direction. All of this is made possible by the ability to more easily share data between the supplier and their customers creating a better more efficient order. You can learn more about some of the advanced features here.

Vendor Managed Inventory certainly is not past its prime but it has evolved as both technology has advanced and as business processes have improved. Companies are now collaborating like never before to control costs and increase sales. There is a growing community of VMI users that include manufacturer and distributors spanning all kinds of industries, business models and geographies asking for new capabilities and providers that are constantly working on ways to improve the VMI process.

It’s not that Vendor Managed Inventory is past its prime; it’s the companies that have not embraced VMI that are.

About the Author

Brian Lindner is the Director of Marketing at Datalliance. He has spent the last 10 years in B2B project management and marketing. He is currently keeping his finger on the pulse of Vendor Managed Inventory and introducing it to companies across the globe. You can follow Brian on LinkedIn at https://www.linkedin.com/pub/brian-lindner/2/39b/674

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