Advanced VMI: Item Stratification


May 5, 2021

In the ideal land of items, they are all equal — those who fly off the shelves and those who linger. In real life, however, they are stratified according to demand to give your customers what they need, when they need it — a key to lower inventories and higher margins. You may have one product that sells in lower volumes but is a superstar revenue generator with high margins. You might also have a number of high-volume sellers that move like hotcakes but have much slimmer margins. And you might have other items that are slow-moving and moderately profitable but are crucial for widening the variety of your range of offerings. Add to that the fact that each of your customers requires a different mix of products in different quantities, sometimes varying on the store-to-store level. Oh, and that your warehouse space is at a premium.

These complexity layers keep inventory planners busy, day after day. They need replenishment strategies to manage all these factors so they can decide how much of each product to send to which retailers and when.

It can be challenging to display a profitable product mix on shelves while meeting all your customers’ needs for timely replenishment. In fact, juggling the unique factors that affect each item can heavily tax employee time and energy. As you plan for the rest of 2021, consider how an advanced VMI solution— with its wealth of actionable data and high automation level — can help your business strike that perfect balance. Such platforms have an array of valuable features, of which item stratification could be crucial for your business.

What Is Item Stratification?

Item stratification is a collaborative replenishment feature that harnesses data to allow products to be sorted into groups with different inventory management objectives. It is a simple yet powerful tool to help VMI planners, who have a heavy workload, to automate some decisions for higher efficiency, better fill rates, an improved product mix, and higher customer satisfaction. The approach is revenue-driven, ranking items on their profitability, how quickly or slowly they sell, and retailer preferences such as minimum and maximum shelf presence.

When using item stratification, inventory planners can configure simple replenishment rules for each SKU in your catalog. The benefits for you and your trading partners are two-fold: You avoid becoming overstocked with slower-moving, low-profit items, or running out of high-profit items that are fast-moving. Your customers benefit by having their needs and priorities filled more accurately—even down to the individual store level if necessary.

With your planners configuring the rules, considering your business’s needs and those of your customers, and acting as ringmaster, your VMI, armed with vast data and analysis capabilities, can assume responsibility for the actual juggling act.

Keep Every Ball in the Air

The aim of item stratification is to prioritize fast-moving and/or high-profit items while maintaining just the right mix of slow-moving or low-selling items to sustain a diverse product catalog—without burdening cash flow. This is balanced against meeting all your retailers’ requirements. Depending on the item in stock, those retailer requirements can vary. For example, they might express that:

  • We never want to be out of stock of this item
  • We are willing to accept a lower service level on this item
  • We never want to have more than a seven-day supply of this item
  • We never want you to use this item in building a full truckload

To optimize your fill rates, you need to juggle these customer objectives against your own revenue-optimization opportunities, on a schedule that works for everyone. A comprehensive VMI solution with item stratification can facilitate that. Item stratification allows you to harness your data judiciously so you can round out your product mix with both faster-moving and slower-moving items, while weighing in other factors such as lead time or product lifecycle. By creating an array of replenishment rules across your catalog, both you and your retailers can avoid overstocking and understocking while maximizing profit for both parties.

Set the Stage for Timely Order Fulfillment

TrueCommerce VMI illustrates how streamlined your inventory planning can be with the right solution. It allows the user to set minimum and maximum days of supply for order points on each item in combination with a “confidence level.” A high confidence level for an item means that you don’t ever want to be out of stock. For another item, you might be willing to accept a lower level of confidence, meaning that you can accept some risk. You can also set shipping conditions to make your loads more efficient. For example, if an item is not highly profitable or is unlikely to sell quickly, you can indicate that it should never be used just to fill a truck. Instead, that valuable space can be prioritized for higher-profit, faster-selling items.

All the stratification conditions you set can be adjusted when stocking requirements change. You might want to adjust the rules around holidays, for instance. And if there are supply chain disruptions, like the ones we’ve seen during the COVID-19 pandemic, you can deploy other advanced features of VMI such as available-to-promise (ATP) or allocation to help better regulate your planning and keep your customers’ shelves stocked.

Revenue Goes Up, Time Expenditure Goes Down

While most companies stratify the items in their product mix to some degree, vendors using VMI have access to the rich customer data and tools they need to crunch a greater number of variables. Data is king in today’s marketplace, and item stratification is one way to leverage data to capitalize on products that are doing well, keeping it stocked in the right quantities at the right locations.

Many companies feel the impact of a collaboration solution with advanced capabilities such as item stratification can be felt as soon as it is implemented, citing vastly increased fill rates, improved customer service, decreased returns, better overall margins, better use of employee time, and a leaner warehouse.

Henkel, the name behind American favorites like Dial soaps and Purex detergents, had that experience. Optimizing inventory and providing high service levels to customers were important factors for Henkel’s success, and TrueCommerce VMI enabled their team to do so while reducing workloads across the board. By using advanced VMI tools like stratification, Henkel has been able to improve promotional event and product change management, while building fuller trucks to reduce costs. In addition, said Tracee Abu, Manager for Henkel Customer Service Supply Chain, “We have greatly improved reporting capabilities. With that information, we know how we’re performing before the customer does.”

A Competitive Market Demands Advanced Inventory Management

In a market that changes at lightning speed, data-driven methodologies can empower your business with significant competitive advantages. Item stratification and other advanced VMI features provide exactly the kind analytical insight you need to make the most of your product lines while challenging any profit-draining assumptions your team is making. Plus, these features give you the operational agility to zoom in on opportunities that can boost your bottom line.

If you would like to explore ways to improve fill rates and profitability with VMI, contact one of our specialists today.

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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.

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