Vendor Managed Inventory Starts With Collaboration
Published on 15 June 2023
Have you ever gone into a store and discovered the product you wanted is out of stock? Or, have you ever been glad that a hot-selling consumer product was in stock? Since the COVID-19 pandemic, it’s become routine that many consumer products are out of stock due to supply chain disruptions.
When popular products are routinely in stock, even during heavy demand periods and during sales promotions, chances are that vendor managed inventory (VMI) programs are involved. VMI and co-managed procurement are driven by POS data and updates. These systems enable supply chain partners such as retailers, suppliers, distributors and manufacturers to automatically share inventory and point-of-sale (POS) data to create a lean, demand-driven supply chan.
The trading partners in a transaction, often a retailer and a manufacturer, for example, gain better insights into actual demand and consumption patterns and are able to execute their supply chains accordingly. This is just one example of how collaboration is enabled by data sharing networks such as VMI platforms and B2B integration platforms where information is shared in near real time or in real time.
Managing the Retail Supply Chain
Within the retail supply chain, the greatest responsibility rests on the supplier or manufacturer of goods to keep the product in stock at its customer (often a retailer or a distributor) and optimized to meet demand. Both parties, however, work collaboratively to this end.
VMI programs are considered a win-win because both parties have maximized sales volumes in mind. The retailer wants to meet consumer demand at all times and keep product in stock without losing sales. The supplier or manufacturer doesn’t want to miss any opportunities for selling product either while keeping its own inventory and production levels highly efficient with lean inventory levels.
As we talked about in our last blog on Managing Peak Season with VMI, the Generix VMI and Collaborative Replenishment solution allows retailers and suppliers to more proactively manage their stock and inventory levels to minimize inventory shortages and disruptions. EDI is a critical underlying technology of these systems and the Generix VMI smart platform is no exception.
The Generix VMI and Collaborative Replenishment solution optimizes inventory with such methods as min-max stock level parameters. The collaborative replenishment portion of the solution provides users with two-sided stock suggestions, such as a retailer that is running a large promotion for the month and suggests the supplier double the order for that particular cycle. Transportation routes and truckload planning can be also optimized.
The Generix solution allows both sides (the retailer and supplier) to build better demand forecasts by using data inputs such as sales history and past shortages and disruptions. The retailer needs optimal stock levels even in the face of promotions, lighter selling periods, or disruptions in stock due to weather or transportation issues.
Meeting KPIs
Especially for manufacturers and suppliers, VMI and collaborative replenishment solutions can make the difference between meeting performance goals or not. Ensuring product is in stock at the right place and right time to maximize sales, avoiding stock-outs at the retailer, and identifying and minimizing slow or idle inventory through turnover rate data are key reasons to adopt a VMI solution.
One of the most critical KPIs is on-time in-full (OTIF) rates which measure a supplier’s ability to meet delivery terms at the retailer or customer distribution point with the correct product and order quantity delivered on time. Otherwise, OTIF penalties in the form of chargebacks or deductions for short or late orders erode profits and hurt the bottom line.
At larger scale, mismanagement of the OTIF performance metric can cost a supplier millions of dollars annually. And both the supplier and retailers stand to lose revenue and customer loyalty when product isn’t in stock.
For more on six KPIs to monitor in a co-managed procurement environment, download our infographic here.
Generix Collaborative Replenishment is available in SaaS as part of Generix Supply Chain Hub. For more on VMI and collaborative replenishment solutions by Generix, download our 4-page product sheet.
About Generix Group
At Generix Group North America, we provide a series of solutions within our Supply Chain Hub product suite to create efficiencies across your 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.
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