Friday, December 11, 2015

VMI: What are Your Expectations?

Customers are becoming more and more comfortable with Vendor Managed Inventory Programs (VMI) and with that rising comfort level come a commensurate rise in customer expectations. In a recent article on Industrial Distributor growth strategies the writers stated: “What has changed are not expectations, but rather what constitutes success. In the past, partial orders, errors, or multiple days for delivery were part of the distribution landscape. That is no longer the case.”

The article continued: “On the back of improvements in logistics and the capabilities provided by information technology, distributors have improved fulfillment performance substantially. Best-in-class distributors have aggressively embraced any means to meet customer expectations, and this has caused the customer to steadily redefine success upward,” they concluded.

Increased Customer ExpectationsWe are finding that rising expectations are not limited to perfect order fulfillment. We have also found that our customers have ratcheted up inventory management expectations altogether. Our customers want their Expense and C level Inventory items managed as tightly as their A and B items. It is no longer penny wise and pound foolish to drive down the inventory levels of items that were once thought best to be handled via semi-annual or annual purchases. We place an increasingly higher rate of low dollar items at Point of Use with goals of 4-6 turns. It is our responsibility to balance Inventory cost and service level (what I like to call Touches vs Turns). 15 touches on an item with an annual spend of $500 is just as undesirable to us as 2 turns on an item with $100,000 spend is to the customer.

In addition, our customers have demanded a broad offering of commodities be included in the program to optimize the benefits of VMI (i.e. volume pricing, less suppliers, improved availability, less inventory, and elimination of stock outs). Not only do they desire a broader offering, they want the offering extended to all their manufacturing sites.
Our customer’s expectations can be summarized in three words: critical mass, reach, and enabling technologies.

- Critical mass means access to a broad basket of industrial components and supplies from top name manufacturers as well as the purchasing power to achieve superior pricing.

- Reach means ability to source from both domestic and low cost countries as well as executing VMI programs where the customer’s plants may be.

- Enabling technologies refers to not only the IT systems at play executing VMI programs (Automated data collection, portals, mobile devices, etc.,etc..) but also the technologies required to augment VMI programs such as Dispensing Systems, Online ordering and self- service.

Perhaps it is time to ask yourself what your expectations for VMI success are - and take them up a notch.

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