Top 3 performance Indicators to have in an effective VMI
Published on 17 November 2021
To ensure effective inventory management, a supplier must have quality Vendor Managed Inventory (VMI). But how do you evaluate such software before purchasing and implementing it? What metrics should you look for?
Inventory Management
In a buyer/supplier relationship, the retailer and vendor are often jointly involved in inventory management, an approach called collaborative supply management. In the context of VMI (Vendor Managed Inventory), the delivery of goods to warehouses and stores is the vendor's responsibility - they are required to deliver goods based on customer needs.
To successfully manage supply operations and ensure good processing speed, suppliers must keep track of their inventory levels. By getting up-to-date data on stock levels in warehouses and stores, suppliers can cover demand for goods and prevent costs and shortages.
The objective/goal: To have the right amount of goods at the right time, thanks to an adequate assessment of needs.
Demand Forecasting
For the most accurate supply management, suppliers make their forecasts based on the preliminary trends that VMI generates. To improve efficiency, the management tool should quickly and easily forecast demand. Additionally, the tool should provide the ability to check the reliability of the forecast at the end of the cycle (day, week, month) to assess future supplier needs.
For example, the software has predicted that customers will have demand for 200 security lock boxes. At the end of the cycle, we should be able to verify that all of the predicted items have been sold.
The objective/goal: Make the necessary changes in the next delivery cycle so that we don't have to rely on chance.
Service Rate
Typically, retailers use a collaborative inventory management model when they intend to achieve an optimal service rate.
The objective/goal: no shortages and always meet store demands.
By sharing inventory management responsibilities, retailers aim to meet store demands while reducing inventory. Therefore, to optimize service rates, suppliers must be prepared to ship items coming in from different delivery points every day.
In a vendor-controlled supply chain model, a quality VMI solution is a key element in ensuring effective collaboration between all parties in the relationship. Only with fine-tuned inventory management and reliable demand forecasting is it possible to achieve optimal service rates. Which is simply necessary to build a successful vendor-implemented inventory management model.
Generix Group North America provides a series of solutions within our Supply Chain Hub product suite to create efficiencies across an entire supply chain. Our solutions are in use around the world and our experience is second-to-none. We invite you to contact us to learn more.
