What is Vendor Managed Inventory?
In a Vendor Managed Inventory (VMI) environment, the vendor/supplier is responsible for maintaining customer’s inventory levels. This means that the supplier is responsible for the availability of products in the storages of the delivery locations and has the flexibility to determine when to replenish them. The supplier has access to the customer’s inventory data and is responsible for generating replenishment orders. The supplier therefore needs advanced planning systems to ensure customers will not run out of stock, so that the customer has the right amount of product availability at all times.
Why start with or optimize Vendor Managed Inventory?
Companies can reap huge benefits by switching from Customer Managed Inventory (CMI) to a pro-active Vendor Managed Inventory (VMI) business relationship with their customers.
For the customer: increased profitability as a result of reduced inventory and administrative costs as well as an ensured product availability
For the supplier:increased profitability as a result of reduced operating costs and a foundation for long-term and strong customer relationships
For both parties: increased asset utilization by optimized routing, improved information for planning (e.g. demand visibility), reduced planning time required to forecast, optimized deliveries and a closer, more effective partnership
For the environment: less mileage, better truck fill, less CO2 per ton*km, better safety to compliance
How to start with or optimize Vendor Managed Inventory?
Introducing VMI changes business processes and the nature of the cooperative relationship with your customers. During such a change process, it is important to collaborate with partners that have experience with these kind of projects and that know how to align people, processes, technology and manage change in such a way that VMI is of direct value.
From a logistics point of view, it’s key to find the right balance between achieving on-time delivery and maximizing drop size. Deliveries that are too late, can result in high penalties, while too early deliveries mean smaller drop sizes and thus higher long-term transportation costs. Advanced planning systems that are capable of handling sophisticated demand forecasting and order generation algorithms, prove to be the right vehicle and enabler to introduce VMI in your organization.
What are the results of optimizing Vendor Managed Inventory?
ORTEC Inventory Routing's VMI functionality can be combined with routing optimization to:
- Optimally allocate orders to the most efficient delivery window planning and manage fleet availability; leading to increased average drop sizes, increased resource time utilization, less trips and reduced transportation costs by 5% up to 10%
- Reduced total overtime paid up to 50% savings
- Increased truck capacity utilization by 10% by creating Full Truck Loads
- Avoid over-stocking at retail sites, reducing all related financial and safety concerns as well as reducing working capital at the retail sites
- Support dynamic depot selection and sourcing, based on product availability and price, including primary transport costs, leading to best-buy decisions
Why contact ORTEC to optimize Vendor Managed Inventory?
ORTEC has a long-term experience in delivering advanced planning solutions within the Oil, Gas and Chemical industry. Our flagship product ORTEC Inventory Routing is a fully integrated VMI application, for advanced planning and execution. When using ORTEC Inventory Routing, companies are able to increase asset utilization, reduce the planning time required to forecast, create, and route the optimized deliveries, to finally decrease their overall transportation costs.