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Source: American Fastener Journal, January/February 2004

One out-of-stock bolt can shut down an entire production line. Yet, most end-users don't want to worry about C- and D-class line items.

"Filling out paperwork for a few hundred bolts or checking dozens of bins to make sure stock levels are on target is too time-consuming and costly for my customers," said the president of a Michigan-based distributorship. "They want to focus on getting their products off the line. So, they leave their stockrooms to us."

By performing vendor-managed inventory (VMI), many distributors have found a niche in an increasingly competitive industry. Offering VMI has helped many businessmen retain customers at an incredibly high rate. And, a deep-rooted presence with a loyal customer base has enabled many distributors to offer ever-increasing ranges of products - resulting in ever-growing sales opportunities.

VMI, Plain and Simple

VMI optimizes the supply chain by giving distributors access to customers' inventory data and makes distributors responsible for maintaining a required stock level.

VMI enables you to become more entrenched with your customers - going beyond supplying a fixed-price product or commodity and offering a value-added service. You free your customers from spending valuable time analyzing stock levels, determining needs, initiating a purchase order, receiving the product, placing it into inventory, and moving it out to the production line or shop floor. With VMI, your customer can focus on his core competency - his business - while you focus on yours - managing inventory efficiently, effectively, and cost-consciously.

You also benefit from VMI. Access to accurate customer usage information simplifies forecasting. Ordering errors - which lead to costly returns - are reduced, since you manage the purchasing process.

There are several ways to deliver VMI. You can consign inventory at a customer location, or send employees to stock bins on a daily, weekly, or monthly basis. In some industries, distributors use a tote system, in which they store a few totes stocked with product at customer locations, and visit regularly to replace depleted totes with fully stocked bags. Some distributors even assign full-time employees to their largest and most profitable customer locations to ensure maximum satisfaction.

Using Technology to Deliver Effective VMI

VMI is gaining momentum as one of the most important value-added services a distributor can offer his customer. Many distributors now realize that they must offer the service - because if they won't, someone else will.

Technology has streamlined the process of VMI. Your enterprise software solution should enable you to access your inventory and transfer product from your warehouse to your customer's location to satisfy his needs. You need cycle counting features that confirm that inventory counts are accurate - both at your company and at customer locations, especially if you consign inventory. Lot and serial number tracking should enable you to monitor stock to ensure well-organized inventory rotations. Because you might sell a certain product at 10 percent above its normal price to a VMI account, you also need dependable, highly flexible pricing libraries.

Remote order entry capabilities help your sales representatives when they travel to customer locations to replenish stock. Many solution providers even offer the ability to enter orders on PDAs, eliminating the need to carry stacks of paperwork or heavy laptops. And, since you most likely want to grow your business, your enterprise software solution must offer you the capability to manage an unlimited number of customers' stockrooms.

How VMI Will Affect Your Bottom Line

VMI generates loyalty, and, if executed correctly, it will also generate new sales opportunities and increased profit margins.

The vice president of a New Jersey distributor realized this when he visited one customer location and saw a disorganized pile of parts and inventory sign-out sheets. He extended an offer to the customer: Let him manage the storeroom. The customer would gain tighter inventory control, resulting in lower costs, reduced shrinkage, and a less chaotic stock area. In turn, the distributor gained control over all purchase orders for inventory that moved into the customer's storeroom.

As a result, this New Jersey distributor more than doubled his sales with this customer - from roughly $400,000 a year to more than $1 million. "As a distributor, managing inventory is our business. It's our bag," the distributor related.

As many distributors know, VMI is much more than offering a few extra services. It's establishing a partnership with a trusted customer. It requires more time and energy on your behalf - especially at first - but, with the proper people and technology in place, you will benefit from increased sales, improved profit margins, and loyal, appreciative customers.

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