Why VMI does not work for CPG companies
Thank you for your article on vendor-managed inventory (VMI) ("Time to reconsider VMI?," Quarter 4/2011). In the opening description of the snack-food company, we are provided with a wonderful description of a smart system. The retailer provides daily stock-balance information, and the snack-food manufacturer uses this valuable data to plan restocking deliveries, production capacity, and marketing campaigns (to speed up slower-than-anticipated demand). So why has this idea not been as successful with consumer packaged goods (CPG) manufacturers?
You report feedback that suggests that the VMI model is too expensive when compared with the benefits. You say that part of the problem is that VMI depends on accurate forecasts, and that these are proving to be elusive. You also state that point-of-sale (POS) systems provide clearer information to drive replenishment of inventory on hand. And you state that automatic replenishment is something that never happened with VMI.
But I do not see the difference in the two systems that would require one to rely on an accurate forecast and the other not to need this data. I also do not see why POS data provide clearer information in regard to inventory on hand. POS requires a calculation to determine stock balance. VMI requires a stock balance.
I suspect that the issue is more related to how the retailer is burdened by each method. POS is relatively easy to set up. Since goods are scanned to bill the customer, no extra work is required to capture additional data. In the case of VMI, where the retailer is required to provide a daily stock balance, there is the additional burden of needing to have a system to calculate the balance on hand and to send one extra transaction (inventory balance) per stock-keeping unit (SKU) to the manufacturer. It is a small burden, but a burden nevertheless.
I can see VMI working where inventory-balance data is integral to the retailer's process, for example with bulk retailers, which worry about this more so than CPG retailers. But for VMI to replace POS in CPG, a paradigm shift in the methods for collecting data is required.
Alan J. Bishop
Principal, Scoord
Franklin, Tennessee, USA
No substitute for face-to-face communication
I couldn't agree more with your suggestion that manufacturers and retailers sit down and have some face-to-face conversations. E-mails and phone calls make it easy for us to feel as though we have communicated and have alignment with partners. Unfortunately, using these methods to communicate also seems to make it easy to not stay committed to those things we may have discussed or agreed to with our supply chain partners. Meeting face-to-face makes commitments much more personal and difficult to not follow through when you know you'll be meeting face-to-face again at some future time.
I feel so strongly about the need for face-to-face conversations with partners that, when I was managing a supply chain for a manufacturer of health and beauty-care products, we had an ongoing practice that each third-party logistics company (3PL) we used would be visited by someone from our supply chain group (transportation, distribution operations, customer service, etc.) at least once per quarter. During each visit, our supply chain staff would conduct a brief audit of the operations using an audit tool that included items we and our 3PL partner had previously agreed were important. They would review the results prior to leaving the facility, and all parties would agree to any corrective actions needed. In addition, we had a standard question that was asked at every face-to-face meeting: What can we (the manufacturer) do to enable you to perform at a higher level of accuracy or efficiency?
Thank you again for reminding us all of the importance and value of face-to-face communications with our supply chain partners.
Mark Richards
Vice President, Associated Warehouses Inc.
Orange, California, USA
Editor's Note: Mr. Richards is responding to a March 2012 commentary in "Supply Chain Executive Insight," a monthly electronic newsletter developed by CSCMP's Supply Chain Quarterly. Sign up for this FREE newsletter.
Communication is key to lean success
"Guerrilla Lean: Leading a Lean initiative from below" (Quarter 1/2011) is a very good article on lean manufacturing. As the author correctly stated, need, vision, and ability to change are three parameters one should consider while bringing about a manufacturing transformation.
Leaders need to take their team with them if they want to achieve operational improvements. Motivating employees to adopt lean principles is a major challenge. One must be a powerful communicator (both written and oral) in order to influence others. It also requires management support and leadership. Determining why change is needed and what should be changed, and then creating the ability to change requires leadership and vision.
In order to adopt successful lean manufacturing in an organization, it is necessary to have thought leadership and emotional intelligence.
Sanjay Kumar Nanda
Consultant, Accenture India Pvt Ltd.
Hyderabad, India
Total cost approach crucial to all supply decisions
I just thought I'd share my opinions about the "Time to come home" article (Quarter 4/2011).
I think it was very well-written in that it was very precise, to the point, and also quite brief for an article that contained so many hard facts.
The sample total cost of ownership template was very helpful as to what to consider when quantifying the real cost of a product to be purchased. The template can be used not only for decisions about whether to offshore or reshore but also for all decisions related to picking sources of supply, even among local suppliers, since most of the criteria in the total cost approach can, at times, vary locally.
Also, in our industry, we have become used to quantifying almost every idea in order to make the transition from concept to practice. Without some number crunching, it is not likely that we will go too far. Therefore, I think, the article also stands out in that respect.
Mustafa Bayülgen
Team Manager Material Supply, Mercedes-Benz Türk A.Ş
Istanbul, Turkey
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