Vendor-Managed Inventory Growing

October 20, 2005
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The keychain scanner is another scanning application available for use in VMI warehouses.
It is doubtful McDonald's would be one of the top-selling fast food chains in America if it didn't quickly provide Big Macs and Happy Meals, complete with french fries. Likewise, when a distributor cannot quickly and efficiently meet the needs of a contractor, it strains their relationship. Time is money, and frustrations mount for both the distributor and the contractor when either is wasted.

F.W. Webb Co., an HVAC distributor in Bedford, Mass., employs vendor-managed inventory (VMI) to solve time, money, and supply issues.

Did You Say VMI?

VMI is an industry buzzword describing the way many distributors are controlling their warehouses and their customers' stock rooms. F.W. Webb not only uses this system with its customers, but also uses the system with its manufacturers.

The process starts with an inventory and sales report, which is sent to the manufacturer. Performance parameters and supply commitments are then made to the distributor. Based on daily distributor reports that automatically upload, and prearranged contract agreements, the manufacturer generates the order and delivers it to the distributor.

F.W. Webb employee scans barcode with a Palm Pilot equipped with bar code reader attachment.
"The manufacturer sees what we sell and then replenishes it," explained Ernie Coutermarsh, F.W. Webb senior vice president of industrial sales and marketing.

No phone calls, paperwork, or signatures are necessary. This allows for the supply chain process to remain uninterrupted.

Changing the distributor's ordering routine significantly is not the only difference VMI brings. Warehouse procedures must evolve to provide the proper information necessary for orders to be generated and inventories handled effectively. Every material and object in the warehouse must be identified, labeled with a bar code, and given a re-order trigger. Rules and methodology for inventory management must also be defined.

Once the distributor has completed the changeover to VMI, it is able to offer this same service to customers.

"We can manage inventory in contractor stock rooms and service vehicles," said Coutermarsh. "F.W. Webb assumes this responsibility, making sure that contractor inventory is stocked and replenished."

The Foresite interface, Sitemaster, allows customers to see one unified front from multiple distributors.

VMI Benefits Package

Distributors employing VMI have experienced many different benefits. Saving time is one of the most evident. Everything bar-coded, when it comes in it gets scanned, and when it leaves it gets scanned. This process automatically updates database information, keeping distributor inventory current.

"VMI stops interruptions to work flow," said Coutermarsh.

The process also eliminates the need to physically count inventory. The time saved using VMI allows distributors and contractors more time to spend on customer service and company improvements, said Coutermarsh.

According to Coutermarsh, VMI is a labor saver. "Using transactional cost evaluation, F.W. Webb found there are steps that can be eliminated, taking some cost out of the process," he said.

VMI is designed to save the distributor money by avoiding pricy overstock and detrimental understock situations, while reducing warehouse staff and labor hours. With traditional stocking methods, the distributor must go through a process to fill orders: send the purchase order, receive the material, allocate the material, store the material, and sell it.

VMI, however, allows the distributor to cut redundant steps and streamline the process, thereby increasing profitability. According to a study done by Datalliance, a division of Enterprise Data Management (EDM), after researching 156 different locations and supplier combinations, Datalliance found that 70 percent of the locations using VMI experienced an average 24 percent sales increase.

Mike Smith, a VMI specialist in the F.W. Webb IT department, scans products into the VMI system.
"The more integrated we become with the customer, the more cost and performance benefits we see," said Coutermarsh.

Supply issues also plague distributors and contractors. Stock outs, inventory turns, and availability can wreak havoc on profits and business turnaround. When a distributor is out of stock, it sends a message of unreliability to the contractor. This can cause a strain in the delicate distributor-contractor relationship.

"Labor cost is a big issue," said Coutermarsh. "The least effective way to use contractor labor is by running out of material and making stops at supply houses. We keep their billable hours out of the supply house."

Using VMI, 71 percent of the locations in the study reduced stock outs by 31 percent. Fifty-four percent of the locations improved both inventory turns and customer service. "Business grows because VMI is an easy and effective system," said Coutermarsh.

F.W. Webb has taken the basics of VMI just a little further. A program called Foresite was created in-house to put a singular face on multiple distributors. Furthering the technology, F.W. Webb offers an exclusive install for each of its customers.

This program combines the products of F.W. Webb, Motion Industries, and Sonepar into one computer interface. Foresite shows the customer one uniform front, but on the distributor end it differentiates the invoices, orders, and quotes to the three respective companies.

"Once contractors work with Foresite, they like it," said Coutermarsh. "F.W. Webb is focused on creating lean, mean, low-cost machines."

Publication date: 10/24/2005

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