VMI software: how about opting for a collaborative approach to inventory management?
Published on 17 January 2018
Overstocks cost a lot: all points of sale benefit from maintaining relatively low levels of inventory. Using VMI software to set up a collaboration with your distributors is a good way to help you achieve this goal. Why? How does this system work? Your questions answered.
What is VMI software?
In the mass market retailer sector, in the majority of cases, the distributor manages product flows by placing orders with vendors. Instead, adopting VMI software, or Vendor-Managed Inventory, relies on collaboration among the different actors of the Supply Chain.
VMI software can localize and manage inventory levels based on real consumption of products in stores. This solution is implemented in the vendor’s system thus allowing the reception of data flows and the access to a dashboard of its partners' sales. As such, VMI software makes it possible for vendors to supply a distribution point with the right amount of products at the right time, based on sales data provided by the distributor.
This tool performs optimally when data exchanges are set up on a daily basis. This data mainly includes information on:
● Status of inventory and in-process inventory;
● Other requests for special operations.
Based on the data provided by the different collaborators, VMI software can help:
● Exchange reliable and standardized data;
● Produce order forecasts and thus steer a shared approach to supply management;
● Send pertinent data back to the vendor who can then calculate the volume needed for replenishment.
Some obstacles to overcome
To work properly, VMI software needs to be able to access reliable and regular data. Therefore, the tools selected to generate data must be cutting edge in order to anticipate all supply scenarios. That is why Generix Group, leader in shared supply management, offers solutions based on proven formulas that guarantee the security of confidential data exchanged between vendors and distributors by using electronic data interchange (EDI).
Another obstacle to implementing a VMI software is that distributors are wary of losing control of their inventory. By sharing confidential sales data with their vendors, distributors may feel as though they no longer directly and independently manage their supply. A relationship of trust must therefore be built before implementing such a solution.
The VMI model: many sizeable advantages
VMI software has been adopted by many distribution groups because of its extensive range of benefits, the most notable of which are set out below:
- VMI software ensures a fairly low inventory level by only allowing the product volume a distributor actually needs to enter.
- By taking into account seasonal consumption spikes and changing trends, it enables you to obtain the greatest benefits from the different periods of the year and new consumption trends while limiting the risk of stockouts.
- With its daily exchanges, VMI software makes the Supply Chain more reactive. The system, capable of precisely analyzing data, ensures that the services provided always go above and beyond— for example to give a product better visibility on the shelves.
Feedback from companies already equipped with the software are more than conclusive: on average, inventory has been halved. However, in order for this solution to work to its fullest potential, companies need to rethink their organization. Vendors need teams specifically dedicated to implementing the solution, teams that understand the problem and the stakes, and are qualified to run operations. In fact, the more industrial management is involved, the easier it will be to implement the process with distributors— and the quicker you will start seeing results.