I recently participated as a panelist with Michael DeCata, CEO of Lawson Products, for Industrial Distribution magazine’s VMI (vendor managed inventory) webinar. Although one of my first articles of my consulting practice from 2005 related to VMI as I found it a great vehicle in driving win-win results, it wasn’t talked about much until recently when it resurfaced as a popular strategy for success. The Amazon Effect has increased interest in this timeless topic!
When I was VP of Operations for PaperPak, we implemented VMI with our #1 customer. Not only did we go from being “off the scorecard” to being named supplier of the year for 2 consecutive years, but we also expanded business and improved our margins and cash flow with the implementation of VMI. Certainly something to consider!
The top benefits of VMI are the following:
- Cash flow: As you better manage inventory in your supply chain, cash flow is improved across the board. In my example, we reduced inventory levels at our customer and internally for a win-win.
- Margins: There are countless numbers of ways to improve efficiencies and margins when partnering on VMI. In my example, we were able to improve packaging which reduced freight costs, collaborate on pallet configuration which reduced warehousing costs and combine/ improve upon the ordering process which reduced overhead costs.
- Lead Times: When partnering with VMI, lead times are typically reduced. In my example, we were able to reduce our key customer’s lead time. Certainly, a day of lead time reduction is significant in today’s Amazon world.
- Revenue: As you become partners, opportunities to increase business occur. As service levels and lead times are improved, lost sales disappear. Additionally when in a partnership, you are easy to do business with. Growth often turns into a win-win.
With these significant benefits, why not give VMI a try? Start with your top customers and discuss the possibility.