VMI, he explains, tends to stock broader lines of products, but not as deeply. For example, if a distributor carries eight weeks of inventory of the manufacturer's A items, VMI will advise it reduces inventory on the A items and stock additional B and C items.

"It increases sales for our customers because now they have the right product on hand," Young says. "Even doing that — carrying more products — it actually reduces the inventory dollars. I've been in this industry for a long time, and everybody talks about a win-win situation. VMI is actually the first and, so far, only application that has lived up to the hype."

He adds that customers send their inventory position on a daily basis to the Datalliance VMI application. VMI will analyze that and create a recommended order.

Page Brake Warehouse, a hard parts distributor with 10 retail distribution locations, began using VMI to manage its 60,000 active SKUs.

"We tend to migrate to those companies that are concerned about doing the best things for us as a distributor," notes Inventory Manager Craig Hansen. "Our inventory turns have increased and our stock outs have decreased. As far as new product offerings that a manufacturer has, we're able to respond to those more quickly and ensure they're on our shelf because of the data flow (that VMI offers)."

Good news for suppliers, too

It isn't only distributors who reap rewards from VMI systems. Although suppliers carry the costs of these solutions, VMI can have a positive effect on their businesses as well.

For example, because inventory management is taken out of distributors' hands, they can focus on more important job duties, like sales.

Buchanan at Datalliance thinks VMI is a wise investment for suppliers because it fosters a better relationship with trading partners. "For suppliers that begin a VMI relationship with distributors, they typically will enjoy increased sales in the region of 20 to 25 percent because the supplier is making it easier to do business with them," he says.

Young agrees that his sales have increased in some cases since using VMI. Why? Customers tend to stock his line more broadly. "The other benefit we see is it's really reduced the returns, which saves us a lot of time worrying about restocking," he notes. "It's greatly improved the relationship between us and the customers we have up on VMI."

Bosch uses an internal VMI-type process that allows for more open communication between the supplier and the customer. Right now, Bosch is working with three of its customers on some form of collaboration, says Kevin Tyschper, director, supply and demand planning at Robert Bosch LLC.

"We do not use traditional VMI per se with our customers," he says. "We rely on interaction with our customers' systems to assist in supply chain planning, and see a smoother relationship, enhanced market penetration and concerted sales strength as a result."

With its system, customers allow Bosch to dial into and have access to their data. Bosch uses a strategy that focuses on collaborative planning, forecasting and replenishment, which promotes weekly meetings between supply chain, sales and customer service, and the customers' product managers, Tyschper adds.

Opportunities and challenges

Buchanan says VMI models continuously are improving, with today's systems being less expensive and capable of handling unique situations like slower moving items or seasonal items and promotions better than in the past.

Datalliance offers a Software as a Service model, which means all upgrades are automatically put into the solution and customers don't have to upgrade or deal with hardware problems. Suppliers absorb an annual fee and a location fee (per location managed).