Wednesday, January 25, 2012

Bigger is Better When it Comes to VMI

Both small and large companies can benefit from strong, effective Vendor Managed Inventory programs. But, for large companies with multiple locations, multiple commodities, and thousands of unique items in multiple points of use; bigger is always better. That is, the supplier needs to be bigger. While a small distributor can handle a single commodity and perhaps meet the needs of a small manufacturer, the larger manufacturer would be ill served by such an approach.

As an OEM, you already know why VMI makes sense, and you may have some form of it in operation currently at your facility. There is less paperwork, less inventory, and increased availability. The right components and supplies are at the critical Point of Use. Direct labor is no longer doing indirect tasks, and there is better use of warehouse and production floor space.

My view has always been that the scale and scope of the supplier must match or exceed the scale and scope of the manufacturer to execute a plant-wide, multi-commodity VMI program. In a short commentary in Industry Week, an article sited industry experts that described a scenario we are all familiar with: the supplier will meet your needs for just-in-time delivery, but only if they receive a significant portion of their revenue from that manufacturer. Additionally, the supplier bears more inventory burden, which forces them to take on more risk. Therefore, the tendency of smaller suppliers is to only offer a narrow bandwidth of core items, due to their being undercapitalized and incapable of managing multi-commodity VMI programs. What follows are 4 reasons why size matters.

1. Larger distributors tend to have the IT infrastructure and the IT personnel to securely and reliably conduct high volume electronic commerce. Timely uninterrupted movement of data means continuous flow of material

2. Larger distributors tend to have the order/inventory management systems and inside personnel available to manage the required upstream relationships to ensure a continuous flow of material from the manufacturer to the distributor. Continuous flow of materials inbound to the distributor is often an overlooked and undervalued core process. This especially important for non-core commodities.

3. Larger Distributors tend to have broader business relationships at higher levels with other distributors to secure competitive pricing and availability of non-core commodities.

4. These advantages are critical to scaling a unified and integrated VMI program. Do not underestimate the advantage of one approach to:

a. Sharing data
b. Building out Point of Use locations
c. Scanning/transmitting requirements
d. Inbound freight packaging and labeling
e. Single point of contact
f. Looking up items, usage, and PO line status
g. Monthly summary invoice

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The iPower Distribution Group of New England is a leader in VMI programs. iPower delivers the widest breadth and deepest supply of Tier 1 commodities in the Northeast. Our supply chain provides $800m annually of industrial components, supplies, and packaging materials. To learn more visit us at www.iPowerNE.com.

Industry Week Article




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