Vendor Managed Inventory (VMI) can cause distributors serious concerns, which stem from the following anticipated predicaments from their particular point of view:
- When there is a lower level of stock, there is more expected risk of disruptions due to bad weather, union or service strikes, and so forth.
- Business can be adversely effected by the elimination of discounts, promotions, and/or forward buying
- Stock is forced on them, causing disruptions and threatening the existing standard of confidence
- Severe concern that the vendors may choose to forward integrate, and the distributors themselves get replaced or dropped entirely
- Vendors reap the loins share as the distributors sacrifice their power of knowing the data that the retailers want.
If you are in a VMI relationship with distributors, the above worries must be rectified and addressed before implementation or amendments to established practices are finalized. You must realize that distributors in a VMI model can be your saving grace, and every beneficial relationship yuou have with them must be both reliable and fair.
For Vendor-Managed Inventory (VMI) systems to succeed, concerns of both your sales force and your distributors need to be resolved. What follows is a list of the principal ways that any issues can be addressed:
- Employ a complete working model of your proposed VMI model in an off-line instance before actually putting one in place at your company;
- Use someone as a broker for the initial meetings you have with distributors, members of your sales team and vendors. Take their objective advice to heart and make sure the decisions address concerns of yours and those in your supply chain;
- Institute your sales team as marketers for the VMI model and initiate bonuses for them for each new client they bring in;
- Implement a start-up program with vendor-owned warehouses to prove that your system works, and then do the same later with a distributor-owned warehouse, once the distributor’s questions and concerns have been shown to be minor;
- Make the process palatable to manufacturers by including their promotions in your establishment/transition period.
Your VMI can only succeed insofar as your supply chain contributes to a mutual benefit of your business and theirs. As a growing number of businesses gravitate to the VMI model, more information on how it works the best becomes available.
Vendor-Managed Inventory (VMI) has helped many companies to give their supply chain the edge that it needs. In this approach, vendors deliver specific quantities directly customers, putting to use data pulled from through the distribution channel using data obtained from Just-in-Time Distribution (JITD, used widely in industries such as automobile), Efficient Consumer Response (ECR, used in apparel and grocery industries) and Electronic Data Interchange (EDI), instances of which can be found in the wide variety of industries that have employed the concept of VMI.
VMI seeks to first reduce and then eliminate stock-outs and its immediate advantage is that it lowers the quantity of inventory in the current supply chain, thus cutting expenses for the storage of stock.