Is Vendor Managed Inventory Right For You?

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Vendor managed inventory

Supply chain management within the oil and gas industry has its fair share of challenges when managing materials, information, capital, labour, technology, financial assets, and other resources that flow through the supply-chain. In recent years, innovation in the field of information systems and communication technologies have made these processes that much easier to facilitate. These technologies aim to integrate operational management processes with other functions to provide optimal efficiency and excellent customer service at the lowest possible cost. These innovative technologies enhance the effectiveness of Vendor Managed Inventory (VMI).

Vendor Managed Inventory (VMI) systems focus on bridging the gap between supply chain planning and execution, as well as viewing the supply chain from an end customer first position. This is done by giving you, as the supplier/vendor, more control over your customer’s inventory. This system allows you to monitor, plan and control inventory for your customers, with the aim of building stronger customer relations, enhancing operational efficiency, and saving on operational costs.

The Ins and Outs of Vendor Managed Inventory (VMI)

Vendor managed inventory (VMI)

There are many different elements affecting inventory control within the supply chain which must be managed and accounted for. VMI aims to do just this through information sharing and creating more visibility using electronic data. This system ensures that key factors such as order batching, price fluctuations, demand information, purchase orders, lack of communication and disorganisation do not hamper the supply chain and create a bullwhip effect. If these processes are not managed correctly, they could end up costing your business in the long run.

VMI software systems allow you to minimise the bullwhip effect and manage these elements effectively through information sharing around your customer’s inventory stock needs. You are able to take the pressure off of your customers by taking control of the availability, ordering and replenishment of their stock. Through this process, customers relinquish their order making responsibilities and provide you with access to their inventory data which you then use to generate and replenish orders.

This is an advanced planning system that ensures that customers will not run out of stock and that they always have the right amount of product available. A VMI program aims to boost fill rate performance and build long-standing customer relationships, e.g. increase delivery efficiency from supplier to end customer to lower customer replenishment costs.

The benefits of Vendor Managed Inventory (VMI)

Vendor Managed Inventory Benefits

VMI systems ultimately automate and simplify the product line, stock ordering and maintenance process between you and your customers. This has many benefits for both you as the supplier and your customer.

Benefits for the supplier

 
  • Increased profitability – VMI delivers increased profitability as a result of increased sales and reduced operating costs. 
  • More control – VMI gives suppliers more control so you can accurately forecast demand. The knock-on effect of this is that production will be more efficient.
  • Reduce costs – suppliers using VMI will have total visibility into their customers’ inventory levels. By utilising this information, you can better meet demand and reduce inventory errors and costs.
  • Strengthen customer-supplier relationships – VMI ensures that your customers have what they need when they need it. By providing optimal service, you are building better relationships with your customers.

Benefits for the customer

 
  • Increased profitability – VMI results in increased profitability as a result of reduced inventory and administrative costs, fewer stock-outs or shortages, and increased sales.
  • Improved alignment of inventory with customer demand – VMI improves the overall supply chain responsiveness to seasonal changes, special promotions, and new initiatives. Enhancing flexibility and adaptability to respond to seasonal changes.
  • Improved customer experience – customers can ensure that their fuel stations are always stocked and provide their customers with the best possible experience.

Technology and VMI's effectiveness

Technology plays an essential role in the efficacy of VMI systems within the oil and gas industry. VMI systems do not work in isolation and in order to effectively manage the downstream supply chain this system needs to be integrated with other operations related to warehouse management, routing, fleet management, transport and distribution. Technology and new software solutions make this integration possible and result in operational cost savings, increased profitability, and higher levels of customer satisfaction. This was the case for an Oil Major in South Africa who needed a solution that would optimise the process of fuel replenishing and routing. Their previous planning and scheduling system had reached its end of life, and an upgraded system was needed. The solution selected was based on criteria related to industry success, experience, and knowledge in the field of Vendor Managed Industry (VMI) and Customer Managed Inventory (CMI). The new system was implemented and resulted in several benefits for the business which included improved planning agility and capability, increased customer satisfaction, time savings, lower greenhouse gas emissions with optimised routes and compliance with HSSE regulations.

Conclusion

Vendor Managed Inventory systems can play an integral role in your business by providing greater visibility, optimal efficiency, a competitive advantage, and increased profitability. For this system to work effectively, you need to implement the best available software solutions. With years of industry knowledge and experience within the oil and gas industry Adapt IT Energy is renowned for providing innovative software solutions to optimise and enhance your downstream supply chain. Move with the times and tap into the technology available today to take your business to the next level.
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