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Seven Key Consideration for Vendor Managed Inventory Part 2


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  1. VMI fundamentally reduces the cost of purchasing administration for the customer. Your goal should be to reallocate 50% of buyer time to higher-value activities. Reduce the effort expended in maintaining purchasing information, reconciling invoices to purchase orders, and other administrative tasks by shifting more responsibility for replenishment to the supplier. With demand and inventory monitored more frequently and better order calculations, expect fewer rush orders, and fewer orders overall. Create a constant flow of information between customer and supplier using common data. For instance, if the supplier changes lead time, the next order should automatically reflect that.

  1. VMI is one of the best tools available for building stronger supplier-customer relationships. Suppliers often favour VMI customers in times of scarce supply in order to meet agreed objectives. A typical supplier VMI planner manages fewer items than a customer buyer (who may deal with items from hundreds of suppliers), and so is also more likely to investigate and respond to unusual occurrences in demand or inventory. A regularly scheduled automatic process recognises the needs to replenish and should result in minimal stock-outs and shortages, while improving fill rates. With full visibility to true to demand along with better information about factors such as lead time, product launches and packaging changes, the supplier can better manage order calculations. VMI can focus both parties on operational/P&L issues- not just product and price. A good strategic supplier can show the customer things about themselves they didn't even know. A good strategically-minded customer values business-driver benefits that go beyond reductions in operating costs.

  2. Review the product mix based on VMI's better demand and visibility to improve your “batting average” in having the right product, in the right place, at the right time. Plan collaboratively with the supplier when introducing new products and to prepare for exceptional demand cycles; take full advantage of special sales opportunities. For distributors and retailers VMI means fewer lost sales opportunities in the near term and improved customer loyalty over the long term.

  1. A more consistent order process, where the supplier regularly evaluates the complete customer requirement, should lower the total order count by 4-6%. Fewer orders results in downstream savings in warehouse pick time, transportation scheduling, accounts receivable and invoice reconciliation. So even though the supplier takes responsibility for replenishment in the relationship, operating cost savings can easily offset the costs of doing VMI. Expect to see a drop in emergency/expedited orders; monitor the change in ordering habits to verify an improvement. Also, improved collaboration on product replacements, etc should result in fewer returns of ‘dead’ inventory while transportation costs may drop due to consolidation opportunities.

  1. Strategic cost savings are a big benefit of placing a substantial portion of business for particular items or item groups under VMI. Create a common perception among all stakeholders that VMI will produce reductions in finished good inventory through more efficient response to demand variation, improved forecast accuracy, and a better information base for Sales & Operation planning.

Waer Systems provide vendor managed inventory solutions and VMI software . Waer Systems also supply general VMI solutions.


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