VMI – Having Your Cake and Eating it, Too

What is VMI?

Vendor managed inventory (VMI) solutions like ones offered at Horizon Solutions help drive cost out of businesses. Vendors work closely with customers to customize services and drive improvements to meet your needs. VMI can improve supply chain performance by:

  • Reducing stock-outs
  • Consolidating inventory
  • Eliminating order-entry errors
  • Lowering transaction costs
  • Increasing available capital
  • Enhancing employee effectiveness

What does VMI have to do with baking?

One of our suppliers makes grinding wheels. Making grinding wheels is like making a cake: mix up the ingredients and throw it in an oven. But what happens if you’re out of ingredients? And, in the case of our customers, what do you do if you need cakes to operate efficiently (metaphorically speaking)?

It’s probably not surprising that one of the key ingredients for grinding wheels is an abrasive grain (e.g., sand). Last year, our supplier was experiencing a grain shortage, which caused their in-house grinding wheel stock to drop and lengthened their delivery time for special, made-to-order wheels. For most of our customers, the impact was relatively minor, especially for those with regular orders and those who stock the wheels they need. But for one of our job shop customers, the shortage was causing heartburn.

What happens when the pantry is empty?

Our customer didn’t have a firm handle of what types of wheels they’d need to fill their orders. So, they didn’t want to carry stock, fearing they’d be left eating what they didn’t use. Add to that that they often needed the special wheels that were now taking the supplier longer to make and deliver, and you can see that the grain shortage was translating into a wheel shortage for their shop.
After a couple of close calls that nearly shut down their production line, we all agreed (the customer, Horizon Solutions, and our supplier) that we needed to find a better way of doing things.

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How can VMI make life sweeter?

The Horizon Solutions team reviewed our history with the customer for the past five years, looking specifically at the types and frequency of grinding wheel orders. We came up with eight wheels that stood out as being frequently ordered and identified quantities based on usage and lead time. End of problem, right? Wrong. Knowing our customer is resistant to carrying stock they may not use, we took it a step further. We went to the manufacturer to see how they could help sweeten the pot. And, based on our long history and strong relationship, they agreed to take back any wheels that weren’t used after one year with no restock fee.

The customer was delighted with the idea. We agreed to put $46K in stock in our Central Distribution Center (CDC) in Guilderland, NY. Now, they don’t have the carrying cost of keeping their inventory overstocked based upon the previous lead times, but they also have the assurance that grinding wheels are available when they need them. Once they place an order, we deliver it the next day on our local truck. And everyone is happy.

Whoever said you can’t have your cake and eat it too was wrong!

We Can Make Your Supply Chain More Appetizing

We offer inventory management solutions that can help you optimize your supply chain. Whether you’re looking to avoid the indigestion that downtime can cause or just looking to lower the cost of your storeroom, we can help. Contact us today!

What are your supply chain challenges? Let us know in the comments.