Advanced VMI: Using ATP and Allocation to Manage Stock in Short Supply
December 7, 2020
No matter where your business sits along the supply chain, “backorder” isn’t a word you want to hear. Even at the best of times, supply chains can be mercurial and keeping inventory at the right levels—neither “out of stock” nor “overstocked”—requires efficiency and careful forecasting. When you throw supply chain disruptions from a global pandemic into the mix, the result can seem like pure chaos.
Take, for example, the inventory shortages we are seeing in furniture and the surging demand for home renovation products lately. Not so long ago, it would have been difficult to imagine such vast numbers of people needing to buy desks for virtual school and work, or that consumers would be spending so much time at home that it would ignite a universal passion for DIY. For suppliers wondering what the next “normal” will look like, there is a renewed focus on supply chain resilience and the need to predict fluctuations in product availability.
The Key Role of VMI Solutions in Limited-Stock Scenarios
The pandemic caused demand for a variety of products to shift radically, while simultaneously impeding timely delivery from some manufacturers. Through it all, vendors and suppliers using vendor managed inventory (VMI) technology solutions have been better prepared to meet their customers’ expectations. VMI (also referred to as collaborative replenishment) allows retailers and suppliers to share inventory data, giving suppliers the ability to manage replenishment quantities from their end while making strategic decisions to help retailers keep products in stock and on time.
This takes an enormous burden off retailers, giving suppliers additional information to leverage to keep their upfront inventory investment levels low, with just the right mix of products on hand at the right time. Using a wealth of data, an AI-driven VMI program weighs factors that could impact inventory, generating accurate recommendations you can use to deliver goods as reliably as possible, whether you are supplying consumable goods, car parts, or plumbing products.
How ATP Enables Just-In-Time Delivery
One enhanced VMI capability that can help you provide better customer service when stock levels are volatile is an available-to-promise (ATP) model. ATP models prevent overselling by harnessing a VMI solution’s data and sending out alerts when new orders come in that exceed the “available to promise” inventory.
Many factors go into an ATP calculation, such as the totality of purchase orders for component parts of a finished product, the manufacturing cycle length, product allocations to your customers, and more. Not only does this help you keep your stock lean and balanced, but it also gives you a more comprehensive view of your inventory so you can share timeframes with retailers. Salespeople and eCommerce sites, in turn, can manage the end customer’s expectations by giving them accurate restock and delivery windows. By sharing information in real time, the supplier and retailer participate in a win-win collaboration that preserves margins and boosts competitiveness for both parties.
Allocating Appropriately to Meet Shifting Demand
Allocation is another advanced VMI feature that can save you headaches when stock is short. Allocation involves setting rules within your VMI program for how much inventory should be apportioned to each retailer you supply. For example, a high-traffic store in a big urban center might need more stock at a higher replenishment rate than a slower-paced suburban store. The allocation model can take that data into account and weigh it against other information, like the amount of shelf space available in each retail location. With these factors inputted, the VMI solution will forecast replenishment recommendations that are most likely to satisfy the needs of each store exactly.
Allocation models are often used in limited-release scenarios like small batch wines and liquors, when multiple, competing customers will expect an appropriate share on anticipated release dates. However, we are now seeing them used to distribute depleted stocks strategically, rather than fulfilling orders on a “first-come-first-serve” basis. This enables manufacturers to keep shelves fuller in high-sales stores, maintaining crucial cash-flow while waiting for new inventory supplies.
A Manufacturing Success Story
Hubbell Incorporated is an international manufacturer of electrical and electronic products for non-residential and residential construction, as well as industrial and utility applications, and has a long history of developing new products and technologies. Hubbell has manufacturing facilities all over the Western Hemisphere and a large network of independent electrical distribution partners. The company was a pioneer adopter of VMI solutions back in the 1990s, when distributors were still reluctant to give suppliers control of the inventory replenishment process. They won their distributors over, however, with the resulting lowered transaction costs, and over the years have sought to leverage more and more advanced VMI solutions to maximize profit margins for everyone while lowering IT infrastructure costs.
ATP and allocation are important advanced features of Hubbell’s TrueCommerce Datalliance VMI solution. They don’t wait for distributors to exhaust their inventory and then react to their needs because they have the AI-driven data to anticipate those needs. “With the daily insight provided by Datalliance we have eliminated what amounts to a two-month blind spot, allowing us to proactively address market trends and smooth demand variations,” explains John Riley, Hubbell’s senior director of eCommerce and business automation. “We also track what products do not move and eliminate those products from the distributor mix. This ongoing refinement
results in the ultimate mix of product for each distributor and increased sales for the
distributor and Hubbell.”
The result of having ATP and allocation capabilities as part of Hubbell’s VMI solution has been increased service levels, improved inventory turns, decreased stock-outs, increased sales, and reduced transaction costs, all of which drive improved overall efficiency and profitability.
Use Advanced VMI to Boost Your Supply Reliability
As markets continue to evolve across multiple channels, it is crucial that manufacturers be armed with all the predictive inventory technology possible. With the insight of the VMI program’s data and the recommendations it generates, suppliers can weather supply-demand storms while meeting customer expectations, remaining competitive, and preserving margins. No matter how supply and demand shifts in the future, one thing is sure to remain constant: consumers’ desire for a wide choice of products, fast delivery times, and low prices. With the right tools, you and your retail partners can give them all three.
If you want to build a more resilient business through predictive technology, contact one of our VMI solution specialists today.
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About the Author: Scott Kleinert is a global sales executive with more than 25 years of experience in supply chain strategy development. He is currently responsible for TrueCommerce’s collaborative management service offering with specific expertise in the consumer goods and retail industries. Scott leads the team that initiates and develops the TrueCommerce vendor managed relationships as well as cementing the value associated with these collaborative initiatives. Scott lives in South Carolina, taking advantage of all that coastal living offers.
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