Legacy Systems Fail to Deliver on Vendor-Managed Inventory

The vendor-managed inventory survey findings expose excess costs and a lack of visibility into current inventory levels

Foster City, CAJune 29, 2015Gatepoint Research released new survey results providing insight into how executives from a number of sectors, including manufacturing, retail and telecommunications, perceive the adoption and execution of vendor-managed inventory (VMI) programs.

The data, based on surveys conducted between February and March 2015 by the research firm, and sponsored by E2open, reveals that the majority of respondents view the drivers of inventory information-sharing between partners as time-consuming, involving enterprise resource planning (ERP) or manual methods, with less than 22 percent using automated business-to-business (B2B) technology. With more than 50 percent of those surveyed identified as senior management (e.g., vice president-level and above), one-third of the total respondents rated their visibility levels between average and none, while great visibility into current inventory levels was only claimed by 26 percent of respondents.

The findings expose an underlying paradox in the industry. Though there’s an increased interest in inventory management programs, such as VMI, that aim to reduce costs and improve customer service levels, companies continue to face challenges in actually establishing these programs.

Key survey results highlighting this trend include:

  • Overall, VMI is not employed at all by nearly 30 percent of survey respondents.
  • Yet, the opportunity for implementing a VMI program is clear: 36 percent of those surveyed stated that their organization has too much cash tied up in inventory, and 29 percent said that they have too much excess and/or obsolete inventory.
  • Only 33 percent felt that inventory levels reflected optimized cost and service levels.

“Today’s manufacturing environment means more outsourcing, more trading partners, more competition—and at the same time, less control, less cash and shorter product lifecycles. Amidst these increased pressures, companies are shifting away from traditional inventory management programs to seek the connectivity and visibility needed across external suppliers to minimize the risk of revenue loss from stock-outs or inventory write-offs,” said Pawan Joshi, vice president of strategy, E2open.

“Though VMI is a proven approach for creating a highly responsive, demand-driven supply chain, the latest research shows a holding pattern in VMI program implementation. However, the investment in implementing the right processes and technologies to establish a VMI program yields a wealth of benefits to both suppliers and brand owners alike, including a real-time response to potential upsides or disruptions in the supply network, which leads to more effectively managed inventory and enhanced profitability. We look forward to leveraging our in-depth expertise to partner with companies to help them implement VMI programs to capture additional value from their supply chains.”

For the 2015 survey, 73 percent of respondents were from Fortune 1000 companies. The 2015 survey is a continuation of several years of ongoing research. Several key trends emerged from the last three surveys from February 2013 to March 2015 (with 300 respondents total), which include:

  • Using VMI on both buy-side and sell-side is relatively rare. Only 30 percent of those surveyed report this capability, whereas those implementing solely buy-side VMI programs outnumber those implementing solely sell-side programs by more than two to one.
  • Visibility into time-sensitive supply chain data continues to be a struggle. More than half of those surveyed reported that their business cannot share daily forecast information.
  • There is a sustained demand for better inventory management collaboration. Among those surveyed, nearly one-third reported collaborating poorly or not very well with trading partners.

The success of today’s supply chains relies on access to real-time inventory information as it occurs, empowering companies to make time-sensitive decisions and improve customer fulfillment. For a breadth of industries, ranging from high-tech to consumer goods, E2open offers a solution capable of providing access to this mission-critical information and enabling automated execution of all VMI processes across suppliers, logistics providers and customers.

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