Vendor Managed Inventory (VMI) is sometimes referred to
as RIM (Retail Inventory Management). In a model like this the
manufacturer takes more responsibility and ownership to help
dealers to improve the management of their spare parts
inventory. The manufacturer usually provides tools and
expertise, as well as an opportunity for excess buyback – taking
excess stock back from the dealer. With VMI, the manufacturer
moves away from the ‘push’ model – trying to push stock to the
dealers – to a ‘pull’ model where everything is based on demand
forecasting and inventory optimisation of what should be
stocked. This is a win-win model for both parties. Both get
bene9ts and both can improve sales and the supply of parts to
the end customer.
When we started with VMI, nearly twenty years ago, it was
only the longer-established manufacturers who were using it,”
said Tony Abouzolof, co-founder and Managing Director for
Syncron UK. “Now most manufacturers in the automotive,
industrial equipment, mining and construction equipment feel
it is a must. All the major manufacturers are involved, either
using external systems or in-house tools which they have
Manufacturers see VMI as a strategic initiative to help their
dealers to be more ef9cient and to improve the management of
their inventory. In the past, most dealers did not know what to
stock, when to order and how much to order. And there was a
tendency for the manufacturers to push stock to them in order
to achieve their own monthly or quarterly targets.
What typically happened was that the dealers ended up
with lots of obsolete, non-moving stock and argued with the
manufacturers about taking stock back,” said Abouzolof. “The
dealers became more and more frustrated, because of all that
excess stock being pushed to them. Now, VMI is an accepted
model for OEMs and dealers.”
Collaboration is a word that has been bandied about the
automotive industry for years with varying evidence of its
application. Tony Abouzolof is 9rmly of the opinion that the
intelligent use of IT solutions promotes greater cooperation
between two parties.
Most VMI solutions are internet-based,” he explained. “This
provides visibility of information for collaboration – visibility of
stocks, demand, orders, visibility of deliveries and when they
will arrive. It’s a collaboration model for aftermarket parts
inventory and IT is a major part of this collaboration. Without IT
it’s impossible to share all this information.”
When a company thinks of implementing new systems it
thinks of two things. Firstly, the drain on the organisation,
perhaps as a result of experience, and, secondly, the cost. I
asked Abouzolof how Syncron addresses these issues.
It’s true that, when implementing a VMI solution, you need
the right people and resources,” he replied. “Most
manufacturers tend to start with a pilot project, a limited
implementation to see how it works. They also use the pilot
project to work out the expected return on investment and the
bene9ts from the larger implementation.
We have been involved in a number of projects where,
because the return on investment was so strong, the
manufacturers provided all the resources and cover the cost of
the implementation. The dealers did not spend any money
towards it and they have limited involvement in the project,
because the manufacturer covers the costs. The bene9ts are so
big for both parties that, usually, this is the way to address these
two dif9cult questions about cost and resources.”
One challenge that used to face companies such as Syncron
was that many of its potential customers have legacy systems,
either through mergers or historical developments. Abouzolof
feels that this is no longer an issue.
Technology today allows us to integrate a system with any
other system,” he explained. “This used to be a problem ten
years ago when technology was poor and it was dif9cult to
integrate new systems. Now, we very rarely see problems
integrating with any system, even legacy systems. The only
challenge is that most legacy systems have been developed by
people who’ve moved away or have retired, and the business
has lost their expertise. The IT is not a challenge but sometimes
lack of knowledge is. We have integrated with systems that were
developed more than 20 years ago and, as long as we have the
right expertise there, it’s not a problem.”
Many emerging regions do not have the background in IT
VMI nowamust for
Vendor Managed Inventory has become the ‘must have’
solution to aftermarket parts inventory management
Sam Ogle