It’s now more than 20 years since the notion of vendor managed inventory entered supply chain thinking. And, while there seem to be obvious benefits in involving the supplier in the management of a customer’s stock, the technique has not always produced the results hoped for.
If a supplier has good visibility of a product’s sales through a particular retail outlet, it should be possible to manage the level of inventory more effectively. However, problems can arise with product promotions. It goes against the grain for many suppliers to hold back stock because a rival product is on promotion.
Nevertheless, for many the benefits are so significant, that the process in being developed and refined. As a result, VMI is increasingly being replaced by VMA – vendor managed availability.
Telefónica O2 is one of the organisations that has been working hard on VMA. Nick Lefever, general manager supply chain, says the key difference is the point at which the retailer takes ownership of the product.
Under VMI, Telefónica O2 would take ownership of the product at the distribution centre, but under VMA it does not take ownership until the product reaches the point of sale. This results in a significant reduction of capital invested in stock.
There are also benefits to the supplier in terms of real time visibility of its sales – though I suspect that some suppliers, which are used to a steady flow of deliveries, might find it quite unsettling to be exposed to the peaks and troughs of the retail market.
And, of course, if the supplier owns the product right up to the point of sale, then it is taking on not just greater cost but also greater risk. So it is critical that it can use the information supplied by the retailer to manage its production and optimise its own inventory levels.
More and more organisations are starting to take up vendor managed availability – and as a result the pressure is going to increase on suppliers to raise their game in terms of supply chain management.