Last week we received a press release, which was published in multiple outlets, from Datalliance announcing that Legrand’s Wiremold line, Hoffman and ILSCO “are continuing to expand their Vendor Managed Inventory (VMI) programs with a growing list of distributors and utilities using the Datalliance VMI platform.”
The press release went on to mention other manufacturers that offer VMI through Datalliance and that over 150 distributors are involved in these programs. The press release, in an of itself, essentially reaffirmed that these three companies were not cancelling their programs … rarely do companies stop this type of program, but, it gave us a moment to stop and ask, “what are the benefits of a VMI program?”
We’ll grant you that there can be many inventory management, inventory quality, manpower / productivity benefits but we asked Datalliance if they had information from their manufacturers to answer:
- What has been the biggest benefits of doing VMI with your distributors been?, and
- How much have you increased sales at accounts that utilize VMI and what % increase is this over your other non-VMI accounts?
Datalliance preferred that we ask the manufacturers themselves, so we emailed them (we knew contacts at each). We haven’t heard from two of them but the third responded:
“It is relatively early days on results so not ready to identify sales growth as a result of VMI. The benefits recognized so far are better on average turns with VMI accounts compared to our other accounts and the ability to seed new products and generate sales for them quicker than the past. We are pleased with Datalliance in this venture.”
Some thoughts:
- “Better than average turns” infers that there is better inventory management or more sales are occuring with these accounts (or it could be a function that the manufacturer is doing VMI with their better distributors who are growing faster and VMI is helping them from a productivity viewpoint.)
- VMI can be a tool to facilitate new product adoption … it can get product into the distribution pipeline faster, which can help distributors differentiate themselves in their local marketplace (if there is sales training and marketing to generate customer awareness.)
While VMI can be an effective inventory management tool, another element appears to be the opportunity for some growth. To optimize the effectiveness of VMI, for a distributor as well as a manufacturer, it could be assumed that purchasing, marketing and sales should be in communication to identify strategies to promote new products that begin to show up in the warehouse.
Your thoughts?
- As a distributor, what do you see as the pros and cons of VMI?
- Manufacturers, if you are on VMI, what benefits are you seeing? Or if you are not on it, why not?
- Reps … how does this affect you? Do you receive appropriate reporting so you know what your distributors are carrying?
4 Comments
I have been on both ends of VMI. From a manufacturer’s perspective the drawbacks to VMI is if something happens and a particular item runs out of stock and the distributor and manufacturer do not have the product is stock, getting replacements is a sticky situation. First, you need to test the selected replacement item to see if it will work, then you need to see if there is a vacant location to place the item and if not the replacement item is ordered and kept in a separate location. Many sales personnel in charge of a VMI facility will not introduce more efficient tooling if it means increasing productivity and reducing sales on a particular item.
From a distributors stand point there are customers that do not want to rock the boat and will not look at testing new tools. I recently had a customer that would not test a comparable tool, but would complain about the cost of the tool that they used. Seeing that VMI is a cost containment and reduction program, depending on the location of the warehouse, distributor branch the sales representative now becomes a delivery person taking a large amount of packages with him on a weekly basis so that shipping costs can be controlled. Many manufacturer’s are not very keen in working with non authorized distributors in a VMI setting. When a VMI distributor takes over a manufacturing location and they are not afforded the same discounts by a tool manufacturer that the previous supplier was receiving the VMI customer usually complains about the discrepancy.
Other problems arise when a serviced account has multiple locations in different cities.
From 1978 through 2002 I was deeply involved in the sale and implementation of several leading edge technology business solutions…both hardware and software based. Never was any leading edge customer willing to proceed with new technology without a proof of concept list of benchmarks to be met. This punch-list would form the basis of a go-no go result. The difference between promise and delivery. When you can prove that the rubber meets the road, everyone is very happy, excited and willing to claim a new best practice. From your article, which is about a company that I have no prior knowledge of, it would appear that either slick sales practices have taken place….or buyers have entered projects that they don’t have the foundation for evaluating whether there was a success or failure in hard dollars…the only ones that count.
Daryl – thanks for your input. Datalliance has been in business for a number of years albeit focused in the electrical distribution space as well as consumer goods. They, like other VMI companies, have a good value proposition for facilitating inventory management between suppliers and distributors (or possibly end-customers in the case of some of the CPG companies). In speaking with manufacturers and distributors, they espouse the benefits of inventory management. We were seeking benefits beyond the inventory aspect.
VMI sounds alla very interesting but, from experience, it is all too frequently vanified by manufacturer’s sales policies that offer extra discounts for bulk purchases.
In today’s competitive market an extra discount is something that can’t easily be refused. I have also found that lowering stock levels is often tactically profitable in bringing suppliers to offer extra discounts to reinitiate orders.
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