5 Important VMI Trends You Need to Pay Attention To
Today’s B2C environment pits brick-and-mortar retailers against not just one another, but the whole of the internet. As eCommerce activity continues to skyrocket with a 44.4% YoY increase in Q2 of 2020, in-store sales are facing year-over-year decreases. To remain competitive in a shifting consumer market, retailers need to ensure they have the right products, in the right quantities, on the right shelves, at the right time.
Vendor managed inventory offers one method to do just that. Using advanced technology, VMI facilitates data communication between retailers and suppliers to improve performance across the board. Distributors using VMI have experienced significant results. One supplier using TrueCommerce was able to realize a 20% improvement in inventory turnover and a 30% reduction in stockouts. Another increased sales by 14% in the first year, while maintaining a 99% in-stock performance.
As the retail landscape changes, so do supplier and retailer inventory needs and strategies. In this article, we’ll cover the top five trends we’ve seen in VMI in 2020, from new ways to enhance on-shelf availability, to increasing internal efficiencies, to building better trucks.
#1: New Demand Signals Advance Inventory Forecasting
Traditionally, suppliers using VMI have sought to increase on-shelf availability by using historical data. Suppliers would look back on key metrics like DC shipments to stores, store orders to their DCs, and even in-store POS data to understand product movements. This data would then be extrapolated forward by algorithms in VMI solutions, giving suppliers an idea of what products would be needed, by whom, and in what timeframe. This is still the most popular strategy for VMI and works well for many trade partners.
However, some leading-edge retailers are shifting away from this approach. Instead of depending solely on historical demand data, these retailers are instead sending their suppliers future demand data, like their own order and sales forecasts. These, combined with factors like seasonality, weather changes, and others, create demand signals which can then be used by advanced VMI solutions to create a better picture of upcoming replenishment needs.
For example, if a retailer were planning a product promotion, they could send a sales forecast to their supplier, enabling them to adjust replenishment plans for a predicted sales increase. Similarly, a store facing predicted weather event, like a hurricane, might know in advance that they’re going to need more generators, flashlights, and related products. This again gives the supplier a “jump” on future needs, enabling proactive replenishment.
#2: Automation Improves Planner Productivity
This year, we’ve seen huge strides in automation usage across industries, from warehouse robotics to artificial intelligence to machine learning forecasting. The VMI industry is no different, with automated, integrated systems swiftly outpacing manual methods and disjointed, multi-vendor supply chains.
The reason is simple: VMI automation doesn’t just help suppliers make better forecasting decisions; it does so while cutting overhead and increasing productivity. For example, when one of North Coast Electric's suppliers invested in VMI, not only did they increase sales and inventory turns while improving fill rates; they also found their inventory manager productivity went up 20%. As a result, the supplier’s teams could manage more SKUs across multiple locations, while still having time to manage exceptions.
Other VMI users have seen similar results. Within months of implementing TrueCommerce Datalliance VMI, DanoneWave reported a “dramatic” increase in their VMI analyst productivity. Another customer, Ocean Spray, saw a 20% increase in analyst productivity, enabling them to expand their VMI program across their retail partners, without personnel constraints.
#3: Allocation and ATP Features are Key During Supply Shortages
Inventory shortages came to the forefront in 2020 as a result of consumers stocking up their pantries during Q1 and Q2. At the same time as retailers were in need, manufacturers began experiencing a shortage of on-hand inventory due to these significant and unexpected demand swings.
For some industries, like wine producers, allocation already played a large role in inventory planning. In the CPG industry, which provides household staples and essential products, suppliers have used allocation automation to ensure retailers with hundreds of locations received an appropriate share of products in scarce supply (e.g. toilet paper).
Rather than fulfilling orders to only a small subset of retailers, the VMI allocation model let suppliers set rules to spread scarce inventory across many retailers based on factors like location-specific consumer demand, shelf space, overall inventory availability and more. And by using an automated VMI solution to do so, suppliers were able to streamline inventory deployment during times with highly dynamic shifts in demand.
Available-to-promise (ATP) models are also engineered to help big suppliers manage products in short supply. While allocation ensures that the right share of products is shipped to each destination, VMI solutions with ATP capabilities make sure that suppliers don’t overcommit. They do so by measuring inventory availability against existing orders, decrementing stock numbers accordingly. Whenever orders exceed available inventory levels, the system alerts the supplier, thereby stopping them from proposing orders they can’t fulfill. This, in turn, minimizes customer frustrations to maintain healthy trade relationships.
#4: Truck Utilization Helps Manage Complex Loads
Whether fulfilling direct-to-consumer, delivering to stores, or drop shipping, trucking utilization remains a key component of business strategy. Poor utilization can impact your company’s transportation costs, lead to product damages, delay deliveries, and drive up your carbon footprint. Luckily, advanced technologies are now helping brands and retailers better understand how to fill trucks and manage complex loads to save money and deliver faster than ever before.
CaseStack has been using VMI technology to consolidate truckloads from multiple suppliers for years. By reducing the amount of LTL shipments from individual suppliers, CaseStack reduced shipping costs, reduced retailer DC dock congestion, increased inventory turns and service levels. Thanks to automation, they could do so while minimizing overhead, and reallocating internal resources to other high-priority projects.
For complex loads, advanced truck building capabilities help suppliers optimize order loading, considering the size, weight, and unique attributes of a multitude of products that need to be shipped. By doing so, you can quickly assess which pallets can be stacked, in what order to make sure nothing gets crushed, and the truck is as full as possible.
#5: VMI Solutions Support Multiple Routes to Market
In today’s highly competitive market, suppliers must support multiple routes to market to service their customers, seemingly without missing a beat. Some large retailers continue to operate with traditional distribution centers. However, other retailers may need direct-to-store deliveries. Some of these mean suppliers will be making multiple stops along their route—which therefore impacts the packing order for each truck. And then of course, there’s cross docking, where supplier’s create store orders that are aggregated onto a truck that will deliver to a retailer’s cross docking DC that are unloaded immediately and placed on outgoing store delivery trucks.
To stay ahead, suppliers need to support all these routes and support appropriate shipment and truck building for each. Even late in 2020, many suppliers are still managing each of them manually, which has only been made more difficult and error-prone by recent supply chain disruptions. Others are using multi-vendor solutions and need to switch from program to program to handle each type of route, which wastes valuable time. VMI solutions like TrueCommerce eliminate this juggling act by leveraging a single interface with algorithms and options for all the routes you use. As a result, you can manage shipments with greater flexibility and accuracy, and provide your customers with better service.
VMI Going Into 2021
Vendor managed inventory continues to evolve to meet the needs of today’s suppliers and distributors. In 2020, we’ve seen the need for VMI accentuated by sharp changes in demand, stock shortages, business shutdowns and employee losses. 2021 is likely to continue the trend of digital transformation, especially as digital commerce channels continue to grow, and supply chain redundancy and inventory visibility take center stage.
We hope that the upcoming year is one of relief, not only for suppliers and retailers, but for workers and families. But for any market changes that come, we know that VMI will play a key role in keeping suppliers not only running but thriving.
To learn more about VMI and how it can help your company succeed, reach out to one of our specialists today.
About the Author: Doug Bethea leads the Datalliance division at TrueCommerce focused on supply chain solutions that improve getting products to market between suppliers, distributors and retailers. Doug’s leadership and expertise target innovative solutions that drive business growth, lower costs, improve operations and build stronger relationships between trading partners. Prior to joining TrueCommerce with the Datalliance acquisition, Doug worked at Procter & Gamble for 30 years leading supply chain and logistics teams. Doug received the P&G Product Supply Technology Award in 1991 and was named a P&G IT Fellow in 2002 for his continuous stream of supply chain innovations that transformed P&G’s product replenishment with customers. Doug and wife, Sally, live in West Chester, Ohio, spending time with three kid’s families and friends, following all sports and learning how to be grandparents.