The Bright Side Of Inventory Replenishment

Vendor managed inventory (VMI) has been getting mixed reviews from analysts, vendors, and retailers since the concept began over 15 years ago. But recently retailers and suppliers have become more willing to share important sales and inventory data with each other, and collaboration is the latest buzzword. This change in attitude may cause more retailers to turn over inventory replenishment duties to their vendors and suppliers, in turn creating more efficiency and profit across the entire supply chain. Vendors such as Capo, Inc. (Ormond Beach, FL), a manufacturer/distributor of sunglasses and accessories, made VMI work for 4,400 retail stores, and it is only the first step for the company.

Vendors Acting As Retail Buyers
The basic goal of VMI is to increase supply chain visibility for vendors and retailers. Vendors want to move away from automated inventory replenishment based solely on warehouse activity, and instead order products according to demand trends and historical retail POS (point of sale) data. Ideally this avoids excess inventory and informs the vendors of what really sells in the stores. At first, the difficult part is sharing replenishment and production schedules, as well as up-to-the-minute sales data to establish what merchandise needs to be shipped to the stores.

When Capo began operating via VMI, it created its own management system in-house, but the process wasn't doing everything the company needed it to do. "Our system lacked built-in features and analytical tools such as forecasting, trend analysis, and seasonality curves," said Paula Haas, programming manager at Capo, Inc. The order entry process was labor intensive and highly manual, especially when dealing with larger retailers that carried more SKUs (stock keeping units). "There weren't any business rules or red flags built into the system to help us determine the best product mix for a store," Haas said. So, Capo implemented a VMI software solution from Nordic Information Systems (Folsom, CA) to allow the distributor to become a stronger partner with its retailers. "We had to act more like buyers in a retail store to really know what they needed and when," Haas said.

Two Heads Are Better For Order Entry Information
The potential benefits of VMI include better-stocked shelves, increased inventory turns, and elimination of unnecessary inventory. Nordic's VMI product offers Capo a variety of standard features from warehousing and order entry to business analysis and inventory management. The entire system is based on information gathered throughout the supply chain such as shipping invoices or store-level POS data. Capo then uses this information to initiate its retailers' inventory replenishments. This benefits both the distributor and its retailers. Capo is able to reduce lead-times, safety stocks, and returns by planning and controlling inventory; its retailers avoid having to coordinate the inventory and ordering process for a seasonal item such as sunglasses. "Any store's display fixture has to be filled according to the season, and we have to make sure it contains the best selling items for that store location. Now we can order based on what each store's sell through is," Haas said. "We work with retailers knowing our own warehouse shipping trends as well as the stores' sale trends."

One feature of the Nordic system works with Capo's order entry process. The distributor feeds the replenishment orders into Nordic's order entry module, and then Capo's ERP (enterprise resource planning) system takes it through the picking, packing, and shipping processes. The ERP system allows the distributor to manage each retailer's individual pricing strategy, so that it can control exceptions and pricing updates. Nordic's inventory management module allows Capo to monitor product mixes to help control inventory. This helps to automate store replenishment as well as create and manage promotions and sales programs for the stores.

Haas thinks using VMI is a competitive advantage for Capo in the marketplace. Currently only four of its 3,000 retailers are operating this way, but those four retailers account for 4,400 retail store locations. Once retailers realize that Capo's VMI system can handle inventory information for enough SKUs to actually make a difference to a retailer's bottom line, Haas thinks more will want to work with the distributor this way. One could almost say that its future is so bright, Capo should wear its own shades.