DMS knowledgebase

Managed Inventory (VMI)…WHAT IS IT?


By Yuri Verjoustinsky
Director, Sales & Marketing Asia Pacific

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Imagine… replenishing your customers inventory based on demand information provided by your customer, guided by agreed to objectives for inventory levels, fill rates and transactions costs.

VMI in a nutshell is a means of optimising Supply Chain Performance through Suppliers management of their Customers inventory. One of the major benefits of VMI is that it focuses trading partners on their common objective…how to sell more product to the end user more efficiently. This involves a major change in focus for the supplier, no longer do they focus on getting the customer to buy more, but more importantly, how to help the customer sell more. A WIN-WIN situation for all the parties involved in the transaction.

Demand Solutions™ is currently being utilised to facilitate VMI programs around the world. Our Demand Solutions™ colleagues in Chicago, has profiled and assisted one of their clients, Intermatic Inc., implement a VMI process. This is a summary of their story:

Intermatic Inc. is the maker of Malibu brand outdoor lights, as well as timers, home security devices, and spring-wound switches for commercial heat lamps and hot tubs. With manufacturing plants in Illinois and Mexico, the company uses 4 distribution warehouses to deliver products to 13 consigned stock locations. The 107-year-old, privately owned Intermatic sells its products to electrical distributors, hardware stores, and mass merchandisers.

Intermatic first became interested in developing a vendor managed inventory system in late 1992 at the request of Kmart. Kmart was asking all its suppliers to convert to VMI programs. Intermatic formed a cross-functional team to meet Kmart’s criteria. Demand Solutions™ provided the answers to their problems. Demand Solutions™ enabled Intermatic to forecast the demand for each customer location and replenish inventory according to their agreed upon forecast & inventory strategy. Cindy Borre from Intermatic commented, “we now know how to estimate demand and produce the right mix of products to keep our customers satisfied. Due to our consistently high customer service levels, other customers have approached us to participate in VMI plans.”

Intermatic’s Cindy Borre comments on Ace Hardware, one of their VMI customers, “currently, we manage 1,054 SKUs stored in 15 locations for Ace Hardware. Using Demand Solutions™ software to manage the VMI program means I spend literally only minutes a day to import data, post it to various products, forecast demand, and create orders for replenishment. Our customer service levels have risen to more than 98%.”

When asked about the benefits of the Demand Solutions™ programs, Cindy didn’t hesitate: “There are several. Externally, the programs have given us a progressive, cutting-edge reputation within our industry. Customers regard us as super service-oriented and, as I said before, they are coming to us to form VMI partnerships. Because of the efficiency of our Demand Solutions™ programs, we can take them on. It’s a service that has not only attracted prospective customers, it has also earned us the loyalty of established customers.”

“Internally, the number of our inventory turns has doubled with another hardware chain, Do It Best. Some of the sales growth is due to a merger between Do It Best and another hardware chain, but much of it is due to the inventory balance the Demand Solutions™ software gives us that we didn’t have before. Thanks to the software, we’ve been able to identify and phase out slow movers we probably never would have found on our own. We’ve replaced these non-productive items with a dozen or so private label items whose sales have really taken off.”

“Could I run a VMI program manually? Yes, if I wanted to spend hours every day trying to mesh numbers with only questionable accuracy. And I ask you,” Cindy says laughingly, “why would I want to do that? The beauty of the Demand Solutions™ programs is that they give us such good results with so little effort.”

It is obvious that the benefits from VMI are there for the picking. The increased information flow between trading partners fortifies trading relationships, whilst providing more effective and accurate information channeling. Is your Company ready to provide REAL-TIME customer service and increase the Value of your Supply Chain? Yes, then give me call and I can discuss with you what is required to get VMI rolling within your organization.

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