Executive Briefings

New Life for Warehouse VMI

The demand for vendor-managed inventory programs in warehouses behaves "as a pendulum swinging back and forth between supplier and retailer," says John Mayer, vice president of sales with Park City Group. Over the last six to 12 months, he says, it has swung back in the direction of favoring VMI. Mayer has seen particular interest in the technique in the grocery industry.

He sees several factors as causing VMI to come back into favor. Retailers are coming to believe that suppliers can do a better job of managing inventory, while understanding the customer's own trends and promotions. A second major reason for the growth of VMI relates to the deployment of manpower, which retailers are seeking to minimize in tough economic times, even as they push more data and responsibility onto suppliers. "Some are welcoming it," says Mayer. "Others are not."

Early VMI programs were characterized by "horror stories" involving organizations overloading distribution centers in order to make their numbers, Mayer says. "They weren't decoupling the demand plan from the revenue plan." In addition, the push for just-in-time fulfillment of orders created performance difficulties in a demanding environment. Today, he says, companies realize the need for at least some buffer stock, which can lead to greater reliance on VMI. One Park City Group client, a food manufacturer, is utilizing VMI to plan all the way back up the supply chain, including raw materials and aluminum cans.

This time around, Mayer says, retailers are approaching VMI "in a much more intelligent way. They're starting to look at the entire integrated supply chain, from scan at register to demand at the warehouse, the supplier's DC and back to demand for raw materials. From farm to fork."

The next logical step after VMI, says Mayer, is store-level ordering. The trend requires strict control of inventory and planning on an individual store basis, as well as the ability to remain flexible as customer buying patterns depart from the forecast. However, Mayer doesn't believe that retailers will ever achieve large volumes of direct-to-store shipments, bypassing DCs, because of receiving limitations at the stores themselves. "It's difficult enough as it is," he says.

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Keywords: Food and Beverage, Inventory Planning & Optimization, Retail, CPG, Asset Management, Business Intelligence & Analytics, Business Process Management, Event Management, Forecasting & Demand Planning , Network Design, Product Lifecycle Management, Sales & Operations Planning, Sourcing & Procurement Solutions, Supplier Relationship Management, SC Finance & Revenue Mgmt., SC Planning & Optimization, Supply Chain Visibility, just-in-time fulfillment, store-level ordering

He sees several factors as causing VMI to come back into favor. Retailers are coming to believe that suppliers can do a better job of managing inventory, while understanding the customer's own trends and promotions. A second major reason for the growth of VMI relates to the deployment of manpower, which retailers are seeking to minimize in tough economic times, even as they push more data and responsibility onto suppliers. "Some are welcoming it," says Mayer. "Others are not."

Early VMI programs were characterized by "horror stories" involving organizations overloading distribution centers in order to make their numbers, Mayer says. "They weren't decoupling the demand plan from the revenue plan." In addition, the push for just-in-time fulfillment of orders created performance difficulties in a demanding environment. Today, he says, companies realize the need for at least some buffer stock, which can lead to greater reliance on VMI. One Park City Group client, a food manufacturer, is utilizing VMI to plan all the way back up the supply chain, including raw materials and aluminum cans.

This time around, Mayer says, retailers are approaching VMI "in a much more intelligent way. They're starting to look at the entire integrated supply chain, from scan at register to demand at the warehouse, the supplier's DC and back to demand for raw materials. From farm to fork."

The next logical step after VMI, says Mayer, is store-level ordering. The trend requires strict control of inventory and planning on an individual store basis, as well as the ability to remain flexible as customer buying patterns depart from the forecast. However, Mayer doesn't believe that retailers will ever achieve large volumes of direct-to-store shipments, bypassing DCs, because of receiving limitations at the stores themselves. "It's difficult enough as it is," he says.

To view video in its entirety, click here


Keywords: Food and Beverage, Inventory Planning & Optimization, Retail, CPG, Asset Management, Business Intelligence & Analytics, Business Process Management, Event Management, Forecasting & Demand Planning , Network Design, Product Lifecycle Management, Sales & Operations Planning, Sourcing & Procurement Solutions, Supplier Relationship Management, SC Finance & Revenue Mgmt., SC Planning & Optimization, Supply Chain Visibility, just-in-time fulfillment, store-level ordering