Advanced VMI: How to Improve On-Shelf Availability
Here’s a truth universally accepted by suppliers and retailers: An empty shelf bringeth no sales.
No one wants in-store shoppers to encounter that lonely shelf tag for their favorite item with no goods stocked above it. When a consumer goes down the aisle and realizes, “Darn, they’re out of it,” their next actions will be either to go away disappointed and buy a competing product that wasn’t what they truly wanted or go to a rival store to find what they need. None of those are good options.
Fortunately, vendor managed inventory (VMI) technology gives suppliers and retailers the ability to share data to their mutual competitive advantage to keep shelves full in a more efficient and timely way. Given the tools to crunch the right data, suppliers can help their retail partners by taking responsibility for improving on-shelf availability, even when they have to manage a diverse array of partners and locations with a large number of brick-and-mortar locations.
What Is On-Shelf Availability, and Why Is It Important?
On-shelf availability is a critical measure of the customer experience because it represents the number of products that are available for customers to purchase in a saleable condition. It’s an even more important metric when your products are consumer packaged goods, which include consumables and perishables that need to be replenished at high rates.
When retail stores have high inventory availability, they have a greater ability to consistently meet their customers’ needs and avoid disappointing them. When you as the supplier or manufacturer can help them improve on-shelf availability and reduce supply disruptions, you make your partnerships highly valuable because you improve the customer experience, which boosts sales.
In the past, the responsibility for managing on-shelf inventory rested solely with retailers. They would take stock of their inventory periodically and place orders for replenishment based on their own sales predictions. This is the traditional approach to replenishment, and there are human errors of judgment that can creep in this way.
Retailers can order too little. They can order too much and clutter their storerooms with unsaleable goods or produce waste when they order too large a quantity of perishable goods for their market. They could order too late, failing to allow for lead time. They might fail to plan properly for seasonality. There is a lot that can go wrong. Fortunately, the technology exists to correct all these common problems.
How VMI Can Improve On-Shelf Availability
So, what is VMI, and how does it help keep shelves well-stocked? VMI is an artificial intelligence / machine learning (AI/ML)-driven technology that gives suppliers visibility across the supply chain by harnessing data that retail partners share with them. VMI optimizes information flow and can have many advanced features that streamline doing business with retailers.
VMI is a type of collaborative replenishment, a replenishment model that uses shared data between suppliers and buyers to optimize recurring orders. The model is a critical one because it is proactive rather than reactive. Instead of the retailer or distributor placing orders to restock products based on their assumptions, the manufacturer or supplier assumes that responsibility. They monitor the retailer’s stock position and replenish their own product based on mutually established thresholds and goals.
To give a very simple example, you might agree that when there are less than 100 cans of organic vegetable soup available on your grocery partner’s shelf, you would automatically replenish that item. This reduces the possibility of stock-outs during the shipment window and the likelihood of soup-lovers walking down the grocery aisle and having the “Oh, they’re out of it,” experience.
A minimum shelf presence setting, like 100 cans of soup, can help suppliers know when to restock, while a maximum shelf presence tells the supplier the most stock desired by the retailer. Other settings that factor into VMI calculations include store assortments and promotional activities, which can determine when, and how much product needs to be delivered.
The alerts that suppliers receive when it’s time to replenish are automatic because the data is processed and analyzed continuously. As a result, VMI analytics help you maintain a balance between overstocking and understocking, so your retail partners always have the right products on hand.
Another strength of VMI is demand forecasting. The COVID pandemic stockout waves reinforced the importance of forecasting for both suppliers and retailers in an unforgettable way. Advanced VMI identifies demand swings swiftly and can help suppliers maximize sales across slow and rapidly selling items. Recent VMI trends suggest some retailers are sharing their own forecasts with suppliers to get even more ahead of sales.
Having the capabilities of advanced VMI as part of your replenishment process means you can focus on what you do best: providing superior customer service. It’s a win-win scenario for both you and your partners, with more sales, improved inventory turns, lower transportation costs, and leaner inventory for both parties.
An Option to Consider: Scan-Based Trading
Scan-based trading (SBT) is a retail partnership option in which retailers do not have to pay up front for your products. Instead, retailers give manufacturers set shelf space in their stores, which the manufacturer must manage and replenish. The retailer only pays you for items after they are scanned for sale at check out. The opportunity here for manufacturers and suppliers is that SBT gives retailers a risk-free opportunity to make a wide range of your products available on their shelves, making it easy for you to expand your in-store presence.
VMI supports SBT suppliers by enabling them to quickly respond to changes in product availability at the store level. As sales occur, the data is sent to the VMI system, which uses them in concert with advanced forecasting capabilities and supplier/retailer stock preferences to create order logic that helps you replenish appropriately for demand in different retail locations. You’ll also be able to see if a product becomes popular in near-real time, letting you scale rapidly.
Real Stock Results with VMI
In practice, introducing VMI to supply chain businesses has been shown to drastically improve on-shelf availability, often leading to significant increases in sales. One VMI study, which measured key business indicators across partnerships and included 156 locations with 21 distributors and 10 suppliers, yielded the following results:
- 24% average increase in sales
- 25% average increase in inventory turns
- 31% average reduction in stockouts
- 54% of the locations improved both inventory turns and customer service
Direct store replenishment using VMI has also been proven to produce marked improvements for suppliers of consumer products:
- Up to 45% reduction in out-of-stocks
- Up to 90% increase in sales
- Up to 3x increase in SKUs carried by the retailer
Ocean Spray offers a perfect example of VMI’s efficacy. The #1 producer of cranberry products in the world, Ocean Spray, deployed the TrueCommerce VMI solution to give their perishable products a consistent and timely presence on supermarket shelves. In addition to creating a 20% increase in analyst productivity, VMI now supports 35% of Ocean Spray’s North American sales.
Liz Taveres, Senior Manager, Global Customer Operations at Ocean Spray, summed up the benefits of VMI nicely. She said, “[VMI] gives us the framework to work closely with our retail partners to maximize sales by improving on-shelf availability—that is critically important to both us and our customers. VMI helps to strengthen our relationships with key customers. It also helps us gain better visibility and insight into promotional demand, improve forecast accuracy and customer alignment, proactively manage distribution gains and losses, recognize potential diverting activity, and reduce unsaleables.”
Rexnord Corporation also uses the TrueCommerce VMI platform to enhance the distribution of its power transmission products. In the first year after adopting its VMI program, Rexnord reported that with one key distributor, stockouts were reduced by 82% for fast movers, more than 47% for moderate movers, and 23% for slow movers. These are transformative results that any manufacturer or supplier would welcome for their business.
Collaborative Replenishment Makes Sense for Everyone
On-shelf availability is at its core a communication issue, and those kinds of issues are best solved by advanced technology. Deploying a mutually beneficial solution that gives manufacturers and suppliers real-time data, robust analytics, and improved insight into their retail partners’ inventory and sales is in the best interest of all parties. In today’s economy, accurate data is a key driver of efficiency and profitability in every sector.
Ready to Improve Your On-Shelf Availability?
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About the Author: Brian Lindner is the Director of Field Marketing at TrueCommerce. He has spent the last 15 years in B2B project management and marketing. His focus is on Vendor Managed Inventory and related eCommerce solutions that help companies save time through automation. Brian enjoys spending time with his wife and 2 kids and in his spare time brews delicious craft beer with his friends.