Supply Chain Matters Sustaining Sponsor E2open recently contacted us regarding a research report they recently commissioned that was focused on vendor managed inventory (VMI) strategies. The study results present interesting supply chain related business process and information technology insights for many industry supply chains that we will share in the commentary.

In terms of background, VMI programs are often predicated on the management principle of a vendor or supplier managing appropriate inventory levels of products based on either a product demand forecast or an actual order flows. The goal of many VMI programs is to drive more efficient and responsive inventory management. Many programs are triggered by replenishment based systems triggered from EDI messaging. Depending on the terms of the program, inventory ownership may transfer to the buyer either upon receipt of the product or when the buyer sells the inventory. (consignment based program).

A September study, conducted by Gatepoint Research, included 200 responses from senior IT, supply chain, finance and logistics executives from manufacturing, retail and telecommunications industry sectors. The majority of the respondents (98 percent) held CxO, Vice President or Director titles, thus the opinions were weighted from an executive viewpoint.  Respondents overwhelmingly worked at large firms which included revenues in excess of $1.5 billion (67 percent).

The report authors draw some of the following observations based on the survey responses:

  • Nearly half of responders employ VMI programs with buy-side suppliers. The utilization of both buy and sell side VMI fulfillment programs (partners, distributors, retailers, etc.) was cited by 30 percent of respondents. Nearly a half (49 percent) use consigned inventory at their buyer’s VMI location. Surprisingly, 22 percent indicated no plans to implement any VMI program.
  • 28 percent of respondents indicate the sharing of inventory information manually (email, fax, etc.) while 20 percent indicate direct use of the resident ERP system, and 15 percent utilizing B2B integration among inventory systems.
  • Most responders indicate a lack of access to real-time information. A majority (63 percent) indicate that they do not always have adequate visibility into their current inventory levels, while more than three quarters of respondents rely on batch reporting for inventory and order information.
  • A stunning 69 percent rate themselves without differentiation from competitors regarding inventory turns.  About one-third of respondents feel partner collaboration is adequate.  Our supposition is that the other two-thirds feel partner collaboration is inadequate.

Reviewing this survey data, Supply Chain Matters can add other observations and insights. The data implies a high utilization of VMI among large enterprises, yet most responders indicating a lack of access to real-time order, inventory and order forecast information. (see below chart extracts) There should be little surprise that nearly 69 percent of responses indicate too much cash tied up in inventory, or too much excess inventory. Only 20 percent of responders felt that their inventory turns were better than the industry average.

 How timely are the Forecast, Inventory, and Order information that you and your partners share?

Gatepoint_E2open_1_425_200 Sept_13Copyright 2013, Gatepoint Research, Used with permission. 


Assess your ability to manage inventory levels.


Copyright 2013, Gatepoint Research, Used with permission.

Our other observation reflects on how respondents rate their inventory management collaboration with partners. Nearly two-thirds indicate high collaboration with partners while about a third feel partner collaboration needs improvement. We therefore conclude that while partner collaboration is rated high, other indicators point to a lack of adequate technology tools to actually leverage the meaningful business outcome benefits of the VMI program. Notice that collectively. 58 percent of respondents rely on either a daily batch, less than daily batch, or ad-hoc order based information. Similarly, 66 percent collectively rely on these same tools for inventory status while 80 percent collectively rely on these tools for inventory forecast data. That implies a lot of information latency, especially when readers consider current industry challenges to conduct business 24 by 7, as well as the massive movement toward online and multi-channel commerce.

By our lens, the most important takeaway from this study is the need for a leveraged use of an online B2B platform that not only serves as the basis of electronic data exchange, but more importantly, near real-time information related to the trending of orders and inventory.  An online network or platform can serve many purposes.  Besides connectivity, content and the on-boarding of suppliers, it can also serve as the basis of integrating more real-time information related to the status of orders, forecasts and inventory.

 The path toward expanded supply chain business process capabilities is not as important as the all-important B2B network platform that forms the foundation of end-to-end connectivity, visibility and decision making capabilities. Why not take advantage of that platform?

 What’s your view?  Are your VMI programs being stymied by latency of information?  Does this current research data surprise you in its conclusions?

 The study itself can be downloaded at this E2open supported web link.

Bob Ferrari

Disclosure: E2open is one of other named sponsors of the Supply Chain Matters blog and no additional compensation was rendered to highlight the above study.