Although the basic concept of Vendor Managed Inventory is straightforward, successful deployment is not necessarily easy. There are several keys to success:
Recognize that Vendor Managed Inventory is Not for Everyone
First, companies should recognize that Vendor Managed Inventory is not for everyone:
- Suppliers and customers should only consider Vendor Managed Inventory for trading partners that are important to them (e.g. reasonably high volume or growth potential)
- Suppliers and customers can only do Vendor Managed Inventory with trading partners that have reasonably solid basic operational capabilities (i.e. consistent warehouse procedures and the ability to provide good data)
- Vendor Managed Inventory enables traditional inventory replenishment as well as inventory replenishment at point-of-purchase and reporting for supplier invoice enablement as part of a scan-based trading (consigned inventory) program.
Understand That Vendor Managed Inventory is Collaborative
Second, Vendor Managed Inventory is different from a typical in-house information system or business process improvement effort in that neither the supplier nor the customer can do it alone - they must work together to make it happen.
Both companies must have mutual trust, a fundamentally good working relationship, and an environment that fosters collaboration.
Don't Underestimate the Importance of the VMI Operations Platform
Third, VMI requires a technology and operations platform that is:
- Designed around a deep understanding of inventory and supply chain management
- More than just performing the right calculations.
- Designed with a solid understanding of issues like varying demand patterns, different supply chain structures (e.g. hub & spoke vs. direct store delivery), multi-location shipping & delivery, and many others.
- Built to facilitate consistent, effective communication between the customer and supplier
- Provides common information to both parties so the process is transparent (e.g. inventory turns and in-stock percentages)
- Provides valid information so people will trust it (e.g. built-in processes to ensure data quality)
- Exception-oriented so people can focus their efforts where action is needed instead of wading through data (e.g.: highlight unusual demand, suggested transfers, and items not sold)
- Managed to ensure reliable operation day-in and day-out.
- A data center with high availability using techniques such as redundancy, fail-over, 24x7 management
- Communications management that monitors for expected transmissions, automates re-tries, and alerts when down
- Skilled people ready to quickly resolve problems (e.g. transmission, data format)
VMI is a strategic tool that gives meaning to the overused term, 'partner'. It gives us the actual product demand information we need to fully understand individual distributors' evolving sales and inventory picture. This visibility allows us to tailor our products and services for each customer, making transactions better, cleaner, simpler.
Pete Guidi President, Ward Manufacturing
We see the most success with suppliers using a high quality tool -- especially those using Datalliance
Laura York Director of Supply Chain Collaboration and Development, Walgreens
Leverage VMI Experience
Finally, trading partners committed to the success of VMI should look for a source of experienced guidance and support, along with well-conceived implementation tools and processes.
- People who have implemented VMI and use it regularly
- Project plans and tools that take the guesswork out of start-up
- Organizations committed to continually improving the process
Professionals ready to provide support when things change, and help whenever it is needed