Designed to increase efficiency within the supply chain, Vendor Managed Inventory (VMI) is the process where the vendor (supplier/manufacturer)
manages the inventory of the distributor. Although it appears an increasing number of companies are using a VMI solution,
many come from industries outside of automotive: home stores, big box retailers and more. Within the auto industry, it seems
heavy-duty distributors are more likely to utilize VMI.
A benefit breakdown
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"For Vendor Managed Inventory to work, there needs to be a good atmosphere of collaboration," says Max Buchanan, director
of sales — automotive and heavy-duty at Datalliance, adding he sees more collaboration on the heavy-duty side than the traditional
aftermarket, perhaps explained by the sheer number of parts managed. However, he notes that in the last 18 months, more traditional
distributors have taken a look at VMI solutions. Inventory efficiency and category management are hot buttons in the aftermarket
today, and distributors are noticing stores like Wal-Mart and The Home Depot maximizing their supply chain relationships for
better profit.
The MO of VMI
There are a variety of options for distributors and suppliers looking to implement a VMI solution. Here's how the process
typically works:
- Suppliers use an outside provider, such as Datalliance, or their own in-house method to offer VMI to distributors. Suppliers
pick up the cost of a VMI solution.
- Distributors work with the manufacturer, the VMI provider and their third-party software provider to determine mutually-agreed
upon objectives and to set up parameters for data collection and reports.
- Sales, inventory position and other data (business system independent) are gathered from the distributor (per location), which
the VMI software analyzes.
- The VMI application will recommend an order, which suppliers review on their own or with distributors to determine appropriate
purchase orders.
- In many cases, the distributor turns all inventory responsibility over to the supplier once the system is established.
A well implemented VMI solution, Buchanan says, can lead to reduced inventory, increased turns and fewer out-of-stock situations
for distributors. Last year, Datalliance conducted a performance study among a sample set of 156 location relationships spread
out across 21 distributors and 10 suppliers (in all industries) before and after VMI. The data show suppliers enjoyed a 24
percent increase in sales at the average location, while distributors experienced a 25 percent increase in turns over the
year and a 31 percent reduction in stock outs.
"We've cut inventory costs and increased sales since using VMI," says Brian Cantagallo, operations manager at AB&S Warehouse,
an underbody parts distributor headquartered in New Jersey. AB&S began using VMI more than a year ago. "We have over 50 vendors
we have to deal with, so when you have one vendor that's going to step up and take the cost out (of managing inventory) it's
one less thing I have to worry about."
Using WHI's Nexpart AE Distribution Management system, AB&S works with Datalliance to allow its supplier, SKF, to manage inventory.
"We set up all the parameters, and now it is all done automatically. We do not place any orders except for special orders,"
he notes. AB&S formerly operated as a hub-and-spoke location, with all orders getting shipped to its main warehouse and distributed
to each location. That's all changed with its SKF inventory, which the manufacturer manages and ships directly via UPS.
Cantagallo states that he doesn't have to stock everything at the main warehouse now, which means less inventory for AB&S
to hold.
Craig Young, director of Information Systems at SKF, notes that the manufacturer currently manages the inventory of 15 customers,
of which AB&S is one.
