Vendor Managed Inventory: 5 Keys to Success

It’s no secret that setting up Vendor Managed Inventory (VMI) can be difficult. But, the benefits of this system can be numerous. In the previous posts about VMI, we discussed its benefits, if it’s the right choice for you, and the setup. Be sure to read up on those if you haven’t already. This time, we’re going to break VMI down into a few key success factors. This will provide you with insight into key elements that should be present in the partnership itself. As well as any other externalities so you can experience success.

Before diving further into VMI, it is important to note that communication is key. At every phase, partners should be actively communicating with each other. Set your expectations up well in advance and be ready to communicate. Just like the supply chain industry, firms and their needs are always changing. As a result, you need to ensure you are on the same page and working cohesively.

To no surprise, “[the]most common cause of failure revolves around communication breakdowns.” Keeping that in mind, let’s move onto discussing five keys to success for a VMI system.

VMI is Not for Everyone

It’s important to recognize that there are a number of factors to consider before implementing a VMI system. Do your research to make sure you are ready to take this first step. For VMI to be successful a few basic criteria need to be met.

Firstly, both organizations need to have basic operational capabilities in place. A VMI system cannot completely replace a procurement or inventory management department. The system should simply enhance efficiency and effectiveness.

Secondly, both partners need to have the ability to produce good data. This point goes hand in hand with  strong operational capabilities. For example, let’s say the customer is not tracking any sales or inventory data. Or, the recorded data is inaccurate. Then, the vendor’s job will become very difficult. The success of VMI heavily relies on the data flow between parties. If data has flaws or is non-existent, VMI will not work.

Finally, for the system to benefit the vendor, the customer must produce a sufficient level of transactions. The vendor is taking on a large responsibility that would usually fall to the customer. In order for VMI to be worth the vendor’s time, the customers’ purchase volume needs to make up or exceed the cost of time for the vendor.

This is a Collaborative Process

This is not a one-sided relationship you are about to enter into. Be aware of each partner’s role to ensure you’re equally balancing benefits and responsibilities. Both sides should be taking an active role in the partnership and continuously communicating with each other.

There should be a consistent flow of inventory data between the two parties. It is vital to have a system that both parties can access. Up-to-date info and data can then be stored on the system. As a result, you can create seamless communication. To enhance this flow even further, you can integrate sales or accounting software into the system.

You also need to make sure communication is prompt and open. If there is even the slightest change in external factors, this should be brought up to your partner right away. In the short term, it will help them to adjust to meet changes. Also, it will help them plan for the long term. With VMI, you gain new expertise and opinions. Be sure to make full use of this to mitigate or eliminate potential issues.

With that being said, with VMI you are building a trust-based relationship. Eventually, purely transactional partners can evolve into strategic business partners. Just like the saying “many hands make light work,” firms can greatly help one another through VMI. This will allow your company to improve efficiency, build its reputation, and strengthen its market share.

Pick One Common Platform

It’s no secret that it is easier to understand someone when you both speak the same language. You can also apply this concept to VMI and deciding on an operations platform. Before implementing VMI, both partners need to agree on a single platform. This will help improve communication and boost efficiency.

A system used for VMI should be designed with an understanding of inventory management. Much like how both parties should already have inventory capabilities in place, so should the platform. Pick a system that is built with inventory management at its core. Systems can always be integrated so that you achieve strength in all areas of your business.

This platform should also have the ability to facilitate effective communication. In other words, the user interface should be easy to access and navigate. The system should put the tools needed to complete a task right at your fingertips. After all, the point of implementing this system is to increase efficiency – why not start with an efficient platform?

This last point may seem obvious, but you should make sure the platform can deliver consistent and reliable info. You don’t want a system that is going to be down for hours at a time for updates. There should also be minimal, if any, lag in data entering and receiving. Communication is critical with VMI. So, a system that can simplify the process is what you should be looking for.

Leverage Any and All Experience

VMI can be a complicated setup to grasp. That is why it is important to take advantage of any info you can get your hands on. You can access a number of sources. A short list might include knowledgeable professionals, other firms, or even your own internal data.

Looking to others in similar fields can help you gain industry-specific info. More specific details will vary from industry to industry. You may find general info (such as this post) online, but that won’t provide industry-specific factors. This is where talking to professionals comes in. They will be the ones with this insight.

Another place to look for further insight is to other firms. Do your research and find out what is working for others that use VMI. What does this entail? This might mean reaching out to companies outside of your industry, your customers, or even online research. Looking at VMI case studies can help you understand real-world applications of VMI and problems that might arise.

You also have a lot of helpful info right below your nose. Use historical data to gain insight into what will work for you. No one knows you better than yourself. Take the time to complete internal research to fully understand what your limits and expectations are.

Outline and Clarify Expectations

It is crucial that both partners understand and accept each other’s expectations. In the initial phases, the vendor and customer should clearly outline these expectations. It is also helpful to have specific performance metrics. You should understand each other’s business models and company visions.

Discuss  potential long and short term benefits you expect the system to provide. You may currently agree on these, but views may change in the future. Make sure both organizations are on the same page to prosper long term. It is also beneficial to have open communication from the start if any expectations change.

You should clearly outline performance metrics and inventory goals. It is important to gain this in the early stages so that both companies are working towards one common goal from the start. It will provide an attainable measurement for performance. If you are meeting your goals and criteria, the system is successful. If you not, it may be time to go back to the drawing board and make a few adjustments.

Finally, you should clearly define your expectations of each other. Discuss what each side will be accountable for. Ensure that you are covering all tasks. If a new task arises, decide early who will take it on. Tasks can often be assigned to specific parties in inventory management software through the workflow process. You can sleep easy at night knowing the job is going to get done.

Interested in learning more about VMI? Find out how Clear Spider can help you.