Vendor managed inventory software and distribution planning in food and beverage industry – here’s something to chew on

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Vendor managed inventory software and distribution planning in food and beverage industry – here’s something to chew on

The Food Packaging Trends and Advances report from PMMI forecasts that the US Food and Beverage industry will experience a 2.9 % CAGR through 2022. The report also mentions that the global growth rate is almost double that of the US food industry. It’s a prediction that shouldn’t be ignored.

Food for thought: Time for a different kind of supply chain

Continued economic growth, customer preferences (especially those of the millennial generation), the rise of ecommerce and the Amazon channel, increased product choices and newer product categories in the marketplace are all driving the need for efficient and effective supply chain networks to support customer demand.

Among the many supply chain initiatives taking place today, vendor-managed inventory (VMI) has become an increasingly effective process and business model to help organizations share risk and information between vendors and customers — while benefitting from lower stockouts, reduced uncertainty and lower costs.

As with any industry, food and beverage faces its own unique set of supply chain challenges, including:

  • Expiring ingredients, manufactured product and packaged goods
  • Changing customer preferences and the need to continually “stock” the shelf
  • Marketplace competition, too many choices and newer fads (e.g. craft going global in the alcoholic beverages industry)
  • Ever-increasing demand volatility
  • A demanding distribution network comprised of producers, distributors and retailers
  • Regulatory and legal restrictions, and safety and quality issues
  • New Product Introduction (NPI) management

Not surprisingly, each challenge requires its own focus, strategy and best practices to overcome. Now, let’s take a closer look at what VMI is and how it can address some of these challenges through best practices.

What is vendor-managed inventory?

VMI is the process whereby a supplier or vendor manages and replenishes inventory at a customer’s location at the levels required by the customer. The customer shares data such as point of sale (POS) data, customer forecasts, current inventory levels, and inventory target levels, which will be used to develop an appropriate distribution plan by the vendor. The vendor is usually the supplier, a manufacturer or a distributor.

The benefits of the vendor-managed inventory process include:

  • Enhanced visibility for vendor
  • Lower order volatility
  • Higher customer satisfaction
  • Reduced order lead times
  • Better transportation planning

The VMI concept is well documented with a real-world example in Michael Hammer’s best-selling book, Reengineering the Corporation.

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