Below are some common concerns suppliers often have about entering into a Vendor Managed Inventory relationship and how a good Vendor Managed Inventory solution addresses those concerns.
Will it be a huge effort to implement VMI?
Without the right VMI solution partner, it could be. But a good VMI solution partner will provide:
- Proven project plans that eliminate guesswork and reduce the effort
- Skilled implementation teams to handle most of the details and address the typical start-up challenges
- A 'Software as a Service' (SaaS) approach that removes most technical issues so supplier personnel can concentrate on working with customers
Our IT department is already over-worked. How will they have the time to implement a new program and maintain the IT relationships with our customers?
It depends on the approach taken. IT requirements can, in fact, be an issue for companies that choose to implement VMI fully in-house - even when they use a software package. But the effort can be dramatically reduced using a VMI solution offered as a ready-to-use service. A VMI solution offered using the 'Software as a Service' (SaaS) approach will:
- Greatly reduce the workload placed on IT departments during implementation
- Require little or no in-house IT resources once live
Will my costs to operate VMI get out of hand?
In fact, companies who choose to implement VMI fully in-house often find it challenging to effectively predict and manage the costs. Again, a solution offered using the 'Software as a Service' (SaaS) approach will dramatically reduce the risk. With the right VMI solution:
- The SaaS approach provides a highly predictable total cost of ownership - no variables for the computing infrastructure, technical support personnel, process support personnel, etc.
- Program costs are all inclusive; supplier operating cost is fully predictable and is largely based on the number of locations suppliers choose to support
- The solution is easy to use by your internal team, minimizing the number of people (FTEs) required to manage your VMI program; VMI management effort is more than offset by time savings in order management
- The cost of EDI data transmission may even be included
Will the supplier's system be reliable?
Yes - if they have the right VMI solution. Reliability is a key requirement for successful VMI. A good VMI solution will be managed around the clock, with data center operations that include:
- High availability features such as: redundancy, fail-over, 24x7 systems management, and environmental considerations
- Technical and VMI specialists ready to address any problem that may arise
- Reliability metrics measured on a daily basis
- A well-documented disaster recovery plan that is tested regularly
Will we get customer resistance?
Possibly - see Distributor/Retailer Concerns. But with a good VMI solution:
- Shared information and transparent processes make 'giving up control' much easier for the supplier
- Proven project plans and skilled implementation teams will remove guesswork and minimize customer start-up effort
- The SaaS approach removes most technical issues and minimizes the need for customer IT resources
- Experienced sales and marketing support from the solution provider should help explain the program and benefits to customers
Note: Ultimately, no customer can be forced into a VMI relationship. If a customer is not fully committed to the program, it is unlikely to succeed. In such a situation, the supplier should reconsider offering VMI to that particular customer.
Will the system actually cause customer dissatisfaction by not working well?
It could. A VMI system that takes a lot of customer effort to implement, is unreliable, is not transparent, or fails to meet operational objectives will probably cause customer dissatisfaction - that is why a supplier must be careful when deciding how to proceed with VMI. However, a proven service delivered by experienced VMI specialists virtually eliminates this risk with:
- An effective implementation process
- The technology and support infrastructure to ensure reliable operation
- The information both suppliers and customers need to ensure mutually determined goals are met
Will we see tangible results in the short term? Or do we have to get a critical mass of customers on board first?
Substantial tangible benefits can be achieved through VMI with even a few important customers - a high percentage is not always needed (see Supplier Benefits). If, however, a high % of customers is the goal, then the VMI solution a supplier chooses should include:
- Experienced marketing help to speed recruiting
- Proven processes to speed implementations
- Reliable operations to keep customers happy and enable the VMI population to grow
We struggle with our own inventory management. What makes us think we can manage customers' inventories better than they can when we have our own issues?
VMI can help a supplier improve their own inventory management more than they may initially think. A good VMI solution can help in several ways:
- One of the reasons suppliers struggle with their inventories is excessive demand variability. VMI smoothes the order flow by removing lumpy orders and leveling stocking plans for the supplier.
- Better visibility of actual customer demand enables a supplier to better prioritize replenishment of VMI customers in times of scarce inventory.
- A good VMI solution provider is an independent 3rd party suggesting recommended orders based on order management practices that are used successfully by many companies and that are continually refined to meet the challenges of unpredictable demand.
Will we need to 'own' our customers' inventory? (i.e. does VMI imply consigned inventory?)
No. With VMI, the supplier manages the inventory, but does not normally own it.
Note, however, that this is entirely at the discretion of the supplier and customer
Will I have to take responsibility for "dead" inventory that has already accumulated in my customers' warehouse?
When entering a VMI relationship it is important to agree how to handle "dead" inventory.
- The customer is typically responsible for "dead" inventory accumulated before VMI - this should be measured at start-up time.
- The supplier typically is responsible for "dead" inventory accumulated after they take over the replenishment process, but that should be minimal or non-existent because of the improved process.
- A good VMI solution will show the difference between the two. Note that experience shows that returns typically decrease about 50%.