How to decide if Vendor Managed Inventory is right for your organization

Vehicle maintenance operations pressed to reduce costs and run more used and aging vehicles might consider a shift to a Vendor-Managed Inventory (VMI) system for parts management. The reason being: VMI "can help ensure the right part, at the right price, at the right place and time, while saving on overall total life cycle costs," says David Nitzsche, senior vice president for AmeriQuest Transportation Services, a company that offers comprehensive fleet management services (www.ameriquestcorp.com).

Cost and business pressures being what they are today have led to a more intense focus on parts management, he notes. A good parts management program enables a fleet to control the cost of inventory management.

With a VMI, the manufacturer or a distributor of MRO (Maintenance, Repair, Operations) supplies and maintains all or part of a fleet's inventory.

The process is simple, says Nitzsche. "The vendor monitors a fleet's sales and inventory levels for their products. With that knowledge, it manages reordering calculations based on actual demand, lead time and other factors. The system then recommends replenishment orders. A technological platform reviews and places the orders.

"Supplier and fleet can keep communications to a minimum, confining it to exceptional situations."

VARIOUS BENEFITS

Nitzsche says benefits to a fleet include:

  • Building a collaborative relationship with key suppliers.
  • Improving inventory turns and reducing administrative costs.
  • Eliminating the need for sophisticated in-house inventory management technology programs.
  • Visibility of the parts inventory.

"VMI makes sense because it frees up personnel for other tasks," he says. "The parts supplier provides scanning devices, barcode labels and other technology so that the fleet always has real-time data on inventory levels. The data triggers a replacement cycle as appropriate."

For fleets with multiple locations, a VMI system can determine when one part is sitting unused in one location when it is needed in another, says Nitzsche. The part can be pulled and transported, automatically triggering a reorder as needed.

"Suppliers like this process because they get greater visibility of the fleet's actual demand, which helps them with production planning. The investment of expertise and technology is a worthwhile trade-off because the supplier's products are embedded within the fleet, which can virtually guarantee a steady stream of business."

NECESSARY STEPS

Nitzsche suggests taking these steps to determine if VMI is the right path to take:

  • Identify the suppliers that are most important to your organization, targeting the top 10 percent, and possibly starting with the top six or eight suppliers.
  • Talk with those suppliers to see if they have VMI programs. Learn everything possible about the program, from the service levels to the handling of overstocked parts.
  • Select a trusted supplier and confirm that your organization's and the supplier's interests align. Start slow, possibly at one location, and expand with the program's success.
  • Expand to different suppliers at a sensible pace.

"Finally, consider consulting with a transportation services provider which has established relationships with top-tier suppliers to tap into more competitive pricing, discounts and incentives, supported by technology to streamline the contract management and financial process automation," he says. "No matter what, the key to any business relationship is finding one where both parties collaborate for everyone's benefit."

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