VENDOR

MANAGED
INVENTORY
What is Vendor Managed
Inventory?.............................. 2
Overview................................ 4
Why do VMI?.......................... 6
Is VMI Right for You?.............. 7
Benefits Offered..................... 8
Potential Pitfalls..................... 13
VMI Setup Guide.................... 14
Keys to Success..................... 17
How Clear Spider Can Help... 19
Clear Spider VMI Features..... 23
VMI Case Study: Grainger...... 26
WHAT IS VMI?

VMI is a program where the vendor manages the level

of inventory at the customer’s inventory locations. The
vendor is responsible for analyzing and optimizing the
inventory flow for each of the customers they are in a
VMI relationship with.

In a VMI relationship, inventory

can be held by the vendor,
customer, or under consignment.

VMI is concerned with the

management of inventory, where
consignment is concerned with the
ownership of inventory.

Both can happen independently or

at the same time.
VMI vs. Consignment
2
TYPICAL VMI PROCESS FLOW
V VENDOR NOTIFICATION C

C CUSTOMER NOTIFICATION

SCHEDULE ORDERS
C REVIEW + EDIT
V
C

ACKNOWLEDGE
ORDERS
CUSTOMER SHIP ORDERS

V
DISTRIBUTOR V
C

GENERATE ORDERS RECEIVE ORDERS

REVIEW + EDIT

RUN REPLENISHMENT CONSUME/SELL

ENGINE ORDERS
3
OVERVIEW Inventory data can be tracked and updated in
The two most important aspects of VMI are person by the vendor, or the customer can give
a high level of trust and effective them access to electronic data. This data is
communication between the parties consistently updated by the customer through an
involved. Efficient information flow is what automated process, or manually if they don't have
allows VMI relationships to be successful. the technology. Having access to this information
Customers need to create a channel through gives the vendor the ability to track inventory and
which vendors can access their replenish accordingly to avoid under or over
organization's data and use it to optimize stocking. Vendors and customers should work
their sales and inventory levels. They need together before implementing a VMI system to set
to be able to trust that their vendors will minimum, maximum, and reorder point levels.
utilize this information in a professional and This helps get both parties on the same page in
productive manner. terms of when new stock should be ordered and
how much should be kept on hand.

“The most
important aspect
of VMI is that the
parties involved
have a high level of
trust and are able
to communicate
effectively.”

4
There needs to be a mutual benefit between the When considering a VMI relationship,
two parties looking to enter into a VMI organizations have to realize that it may not
relationship. The customer benefit comes mainly be the right system for every partnership.
from alleviated responsibility. Along with the For a VMI system to be the right choice,
shift in responsibility comes a shift in the costs there has to be a solid working relationship
for order planning and processing. This shift to build on, and both the vendor and
creates a decrease in costs for the customer. The customer have to find benefit in the
vendor’s main benefit comes from increased outcome .
control over the inventory. They are able to more
accurately forecast demand since they have
access to their customer’s data. This allows
inventory to be managed with a focus on
efficiency, lean manufacturing, and seamless
delivery.

“VMI may not be the

right system for every
partnership.

There needs to be a
mutual benefit between
the two parties.”

5
 WHY DO VMI?
There are a variety of benefits that can come
from VMI. There will be an increase in profits
seen by both parties if implemented successfully.
These increased profits are realized through a
combination of cutting costs and increasing sales
and related revenues.

VMI helps to generate

profits by increasing sales
revenues while cutting costs

By moving the inventory decisions closer to the

source of inventory, the supply chain can react
much more quickly to shifts in product demand.
The Bullwhip Effect is when there are This in turn helps to avoid over or under stocking
large inventory variances seen as you products, and increases the number of inventory
move up the supply chain from the end turns. Because the vendor has the ability to
customer to the initial provider. monitor inventory levels and trends, they are
Miscommunication and each able to quickly respond to needs and
organization acting in self interest are the immediately send out stock. By shifting this
most common causes of these variances. information and control up the supply chain, the
bullwhip effect is reduced and inventory orders
will reflect demand more accurately.

Improve Order Increase Inventory Generate Greater

Accuracy Turns Sales

6
IS VMI RIGHT FOR YOU?
VMI is a widely adopted technique used across industries to improve inventory management and supply
chain operations. There are many proven benefits with VMI; however, it may not be right for everyone.

It is essential that the partners looking to implement a

VMI system have an established working relationship.
Do you and your partner The two parties need to be able to collaborate and
have an established trust each other in order to create a
working relationship? successful system.

YES
If one party does not benefit from implementing the
system, they will have no motivation to actively
Will there be a mutual participate in the partnership. A VMI system is a highly
benefit between the collaborative process that requires cooperation
partners? from both parties.

YES
Information needs to be shared across one communal
Are there organizational channel for a VMI system to work effectively. Each
processes in place to allow organization should have competent processes in
information sharing? place to gather and report inventory data
independently, before setting up a
YES VMI system.

Are both partners It is important to clearly outline expectations and

expectations of the performance metrics prior to implementing the
system aligned? system. Some things to consider are: inventory turn
goals, customer service fill rates, dead stock, and
YES surplus stock.

Do you have time to

properly implement the Having the time to implement a VMI system is
VMI system? essential to ensure a smooth transition. Do not rush
the process! Start small and work your way up to a
more complex system.

Before implementing a VMI system be sure to get advice from industry peers and other experts. Do your
own research as well to ensure you are fully ready for the transition.
VMI may not be for everyone, but can greatly help if it is right for you.

7
CUSTOMER
BENEFITS OFFERED
VENDOR

Higher Inventory
Turnover

Seamless Greater
Deliveries Control

Lower Improved
Maintenance Costs Inventory Planning

Improved Reduced
Customer Service Operating Costs

Increased Sales Stronger Customer

and Profitability Relationships

Increased Sales
and Profitability

8
 CUSTOMER

Higher Inventory Turnover Seamless Delivery

Through data sharing, vendors have visibility into It is easy for vendors to know when their
their customer's inventory and sales levels. Having customers need stock since they have access to the
access to this information allows vendors to better customers’ inventory levels. Having access to this
and more frequently monitor inventory. Product knowledge in real-time allows orders to be
demand is more accurately reflected in inventory processed much more quickly. There is virtually no
planning and ordering since information is delay between recognizing the need for inventory
monitored more frequently and closer to the and an order being placed. A VMI system gives you
source of stock. This accuracy allows for smaller the ability to meet customer demand dynamically
orders to be put through more frequently, and create a responsive and agile supply chain.
decreasing both the cost of carrying inventory and
the number of stock outs.

9
Lower Maintenance Costs Improved Customer Service

The data flow becomes more consistent when a With VMI, vendors are more aware of the end
VMI relationship is formed. Both the vendor and consumer’s needs. This allows them to place orders
the customer use and update the same system, with a quicker response rate and to more
allowing for better communication. The customer accurately reflect demand. This ensures their
saves time and money related to inventory customers have the right product at the right time,
planning and ordering as these responsibilities are keeping the end consumer happy. Vendors also
shifted to the vendor. When entering into a VMI have more in-depth knowledge of product offering
relationship many customers have found that their which allows them to put together a better product
buyers can reallocate 50% of their time into more mix. Both of these activities increase the level of
value-adding functions. service offered to the end consumer.

Increased Sales and Profitability

Many of the benefits listed prior contribute to

increased sales and profitability. Having fewer
stock outs, a quicker response time, less
administration costs, and a better product mix
all help increase sales. VMI allows for better
collaboration between the vendor and
customer and gives them the ability to work in a
more cohesive manner. Having the efforts of
two companies working to drive sales and
effectively manage inventory, has a great
impact on overall profitability.

10
 VENDOR

Greater Control Improved Inventory Planning

One of the largest benefits that a vendor gains With timely access to inventory data, vendors can
from entering into a VMI relationship is increased better plan not only their customers’ orders, but
control. They gain access to their customers’ their own orders and production as well. Having
inventory sales and demand data, and can be access to their customers data makes vendors
preauthorized to place orders to meet any needs aware of the fulfillment urgency for specific items.
that may arise. Vendors can better manage They are able to better prioritize production and
inventory planning, stabilize purchase order orders to ensure demand is met on time. Since
timing, and work promotions into their inventory demand knowledge is gained earlier and more
plan from the back end. Vendors can create a more consistently with VMI than in a traditional
consistent order schedule to meet the demand vendor-supplier relationship, vendors are able to
needs, thus minimizing the number of rushed respond to unexpected or special activity in a more
orders. They are also able to work any special prompt manner. During new product
events into their production schedule so that they introductions vendors have immediate access to
do not fall behind on orders. sales data on these products. Decisions related to
these product introductions can be made more
rapidly, allowing for execution to happen in a
shorter time frame.

11
Reduced Operating Costs Stronger Customer Relationships

Although it can be costly to take on the Through a VMI relationship, trust and reliance
responsibilities of managing inventory, the savings between the vendor and the customer are
from improving operational efficiency can easily increased over time. Having a long standing
offset this cost. The following are areas where relationship with customers will help reduce
vendors often see operational improvements: the cost of sales and help vendors protect and
• Fewer errors from miscommunication grow their market share. Vendors will build a
• Fewer rushed orders due to stock outs strong reputation with their current customers
• More consistency in the ordering process making it more likely for these customers to
• Lower transportation costs from consolidation continue the relationship, and recommend the
• Less ‘deadstock’ being sent back vendor to other customers in the market. The
• Imprved order accuracy from timely information vendor and customer relationship will evolve
Many companies have seen reductions in the total into a strategic partnership through VMI. The
number of orders of between four and six percent, customer and vendor will be able to gain
which greatly adds to reduced operating costs. valuable insights from each other on how to
improve their operational efficiency.

Increased Sales and Profitability

This benefit goes hand in hand with the benefit to the

customer of increasing sales and profitability. As the
customers sales go up, they will need to increase the
amount of inventory they order, therefore increasing
the vendor's sales. There are many different
elements that play a role in increasing the sales on
the customers end. Having fewer stock outs, quicker
response time, less administration costs, and better
product mix all contribute to this increase. VMI
allows for better collaboration between the vendor
and customer and gives them the ability to work in a
more cohesive manner. Two organizations working
together to drive sales and effectively manage
inventory often results in an increase in profitability.

12
POTENTIAL PITFALLS
AND HOW TO AVOID THEM
Data Translation
With such a large amount of data constantly being shared between the
parties, it can be easy for some of it to get lost in translation. This is why it
is important to ensure there is one common ‘language’ being used within
the system. A large part of this is in the way that products are referenced
and what information is stored for each item. These details need to be
known and familiar to both parties. It may take more time in the setup
phase to ensure consistency, but it will pay off in the long run.

Rapid Changes
Highly volatile items can be harder to manage in a VMI system. If the vendor
is not familiar with the trends of these items, and this information is not
reported or communicated in a timely manner, it can cause a lag in the
system. Having open communication about these items from the start and
working together to monitor the demand can help mitigate this issue.

Overstocking
Some customers may be concerned that vendors will overstock inventory to
increase their own sales. However, if this is a legitimate concern, then the
initial trust needed for a VMI relationship is not there. VMI is about creating
a relationship where both partners are motivated towards mutual benefit
and working towards the same goals. If this relationship has not been
established you may want to reconsider moving forward with a VMI project.

Under stocking
On the other hand, there may be a concern that the vendor will under stock
in an attempt to increase inventory turns. Setting unrealistic parameters for
inventory goals is often the main cause of this issue. You have to ensure
that both partners’ inventory and fulfillment goals are aligned before
entering into a VMI relationship.

13
8 STEPS TO SETTING UP VMI
1

8 2
UNDERSTANDING
YOUR PARTNER

SET UP ORDER SELECTING A VMI

CREATION SERVICE PROVIDER

7 3

CHOOSE ORGANIZE AND COUNT

REPLENISHMENT INVENTORY
SYSTEM

6 4

5
STORE SET ORDER
INVENTORY DATA QUANTITIES

GATHER
INVENTORY DATA

14
 UNDERSTANDING YOUR PARTNER
1 It is crucial that both partners understand and accept each other's
expectations. In the initial phases of implementation the vendor and
customer should clearly outline these expectations along with specific
performance metrics. They should understand each other's business
models and company visions. It is important to gain this level of
understanding in the early stages so that both companies are working
towards one common goal from the start.

VMI SERVICE PROVIDER

2 A VMI system can be set up either through internal communication or
through a VMI service provider. Though both have been successfully
implemented, many companies have said that going through a provider
makes the process easier and more user friendly. Service providers tend to
have inventory knowledge to help align your VMI system with your process
flow, along with the capabilities to make data translation seamless between
the two partners involved.

ORGANIZE AND COUNT INVENTORY

3 When implementing a VMI system it is a good idea to “refresh” the
inventory that will be going into the system. Complete a physical count on
all items and then decide how this count is going to be maintained moving
forward (cycle count or physical count). If the inventory site is not organized
you should implement a system to ensure that it is. Using bins and labels,
and providing a high amount of detail on each item enables quick and easy
inventory retrieval.

SET ORDER QUANTITIES

4 The vendor and distributor should set predetermined minimum, maximum,
and re-order points ahead of time. Use of historical data and distributor
sales knowledge will help determine optimal levels for each of these
performance metrics. Then, once the system goes live, the predetermined
points and up-to-date inventory levels will be used to calculate
replenishment orders.

15
 GATHER INVENTORY DATA
5 Data can either be entered electronically through barcode scanners and
other mobile devices, or manually, if that technology is not available. The
method of data entry depends upon the environment, the required or
desired speed of entry and retrieval and the budget for mobile technology.
Another option is to obtain POS (Point-of-Sales) data or usage data in the
form of EDI (Electronic Data Interchange) transactions or API’s (Application
Programming Interface) between the purchasing and ordering systems.

STORE INVENTORY DATA

6 The next step is deciding how your data will be uploaded to and stored in
the system. The captured information can be sent to the inventory
management system either in real time if there is an internet connection, or
saved temporarily and downloaded to the system when a connection
becomes available. If an API is used, data is usually sent real-time, or at a
predetermined time on a daily basis.

CHOOSE REPLENISHMENT SYSTEM

7 Once all the data is in place, a decision needs to be made on how
replenishment will be calculated. The inventory data will be monitored and
measured against the predetermined performance metrics allowing
decisions to be made and new orders created. This can be done
automatically through inventory management software, manually by hired
professionals, or through a mix of both methods.

SET UP ORDER CREATION

8 Finally, the orders created through the replenishment system need to be
uploaded to your in-house business system. This can be done automatically
through API’s so they can then be picked, packed, and shipped. Distributors
can then acknowledge, receive the goods, or have the system do it
automatically. Any ASN (Advance Shipping Notification) or other
information can be sent back to the inventory management system as well,
for the vendor or third party agent to review. The benefit of having a
workflow engine is that you can accommodate different processes or
workflows for different clients and items.

Setting up a VMI system is an on-going process. At anytime throughout, or after completion of

implementation there may be a need to re-evaluate certain stages. With each organization
operating in a dynamic environment, their individual needs are ever-changing and evolving.
The performance needs and expectations of each organization can change resluting in
changes in what is demanded of the system.

16
 Recognize “VMI is not Understand it is a
for Everyone” Collaborative Process
For VMI to be successful: Both partners need to take an
- Basic operational capabilities active role in:
need to be in place - Creating a consistent flow of
- Both partners need the inventory data
ability to produce good data - Building trust in the
- The customer must produce relationship
a sufficient level of - Having prompt and open
transactional volume communication

KEYS TO
SUCCESS

17
Common VMI Leverage VMI Clarify
Operations Platform Experience Expectations
Both partners need to agree Before implementing a VMI Before implementing VMI,
on a single platform that: system, gather information from: partners need to discuss:
- Is designed with an - Knowledgeable professionals - Potential long and short
understanding of inventory in similar fields term benefits
management
- Organizations that have - Performance metrics and
- Has the ability to facilitate successfully implemented, inventory goals
effective communication and use VMI systems - Expectations of each
- Can deliver consistent and - Historical inventory and sales other, and the tasks they
reliable information daily data from the customer will be responsible for

18
HOW

CAN HELP
INTEGRATE. CUSTOMIZE. AUTOMATE.
Clear Spider is a cloud-based, vendor managed inventory (VMI) system that
provides clients with visibility to thousands of forward stocking locations.
This is made possible through a highly customizable platform, limitless
integration options, and a smooth implementation process. Our system has
surpassed our current clients’ expectations for their VMI needs. See what we
can do for you!

20
 CLEAR SPIDER MAKES DATA
TRANSLATION SEAMLESS
Clear Spider makes VMI possible by allowing
vendors and customers access to the same
system. Both parties can update and view the
system on their own time making data translation
seamless. Clear Spider also allows these
permissions to be customized for each party so
they only have access to the features necessary
for their operations. This allows companies to
maintain organizational security while still
allowing for easy and open communication.

21
CLEAR SPIDER INCREASES
ORDER PROCESS ACCURACY
From the vendor's perspective, Clear Spider
allows them to track inventory levels using
minimums, maximums and reorder points.
These indicators will notify vendors when the
customer’s inventory falls below the preset
levels and an order needs to be placed.
Vendors are able to track inventory through a
variety of reports and live data, allowing them
to improve delivery times and more accurately
forecast customer demand. In addition,
vendors can create purchase orders, print
barcodes, run inventory reports and more.
Clear Spider helps to simplify and ensure
accuracy in the order process.

22
VENDOR MANAGED INVENTORY FEATURES

CUSTOMIZABLE RAPID DATA

PLATFORM LOADING

ROLE-BASED REPORTING AND

USERS ANALYTICS

AUTOMATIC ORDER CONSIGNMENT AND

REPLENISHMENT FULFILLMENT CAPABILITIES

INTELLIGENT BARCODE AND RFID

WORKFLOW ENGINE SCANNING

23
Customizable Platform

Clear Spider is a customizable platform built on ASP.net, Microsoft's web

application framework. A customizable system like Clear Spider gives you
the ability to have your inventory system match your inventory processes.

Rapid Data Loading

With Clear Spider you can import large amounts of data into the system
using excel spreadsheets. The template to do this will be provided to you
during the setup phase of implementation to upload your initial SKUs. The
template can also be used for mass updates, rather than manually editing
individual items. This makes it simple for your organization to keep up to
date information even when large scale updates are required.

Role-Based Users

Users in the Clear Spider system can be granted different levels of access
based on operational needs. For example, using role-based permissions can
limit your customers or vendors to only viewing inventories at their
locations. This will keep inventories private and only accessible to the
appropriate users. Any degree of visibility is possible. It simply depends
upon your business needs.

Reporting and Analytics

Clear Spider offers a variety of customizable SQL-based reports that can be

exported to Excel and XML formats. Some examples include billing history,
order history, planned inventory, tracking number, and item reports. These
reports help vendors better monitor system performance and track
historical data and trends.

24
Automatic Order Replenishment

The systems re-plan engine produces automatic purchase orders based on

reorder points, minimum and maximum quantities, and consumption.
System generated purchase orders will be created with the appropriate
quantities to bring customers back up to their desired stock levels. Automatic
replenishment helps to reduce stock shortages and ensure that orders are
always placed on time.

Consignment and Fulfillment Capabilities

Fulfillment encompasses all of the processes that take a product from the
vendor to their customers. Clear Spider’s fulfillment capabilities include:
order generation, acknowledgment, pick, pack, ship, bill, receive, and unit of
measure conversion. We can also customize the system further for
capabilities that are unique to your organization such as consignment storage.

Intelligent Workflow Engine

The Clear Spider workflow engine deals with the process used in order
management. You can define the specific stages of an order that your
business requires and the sequence in which they need to be completed. This
allows Clear Spider to accommodate any level of supply chain complexity, and
help you ensure each step is completed along the way.

Barcode and RFID Scanning

With Clear Spider you have the option to integrate barcode or RFID scanners
to simplify the data entry process. If you don't already have scanners in place,
we can help you select the right technology for your operations. You can either
use barcodes that are already on your items, or print custom labels using the
Clear Spider system. These capabilities make organizing and maintaining
inventory a hassle free process.

25
 Grainger is a Fortune 500
company and the leading supplier
VENDOR MANAGED INVENTORY AND

GRAINGER
of maintenance, repair, and
operating products. They manage
the inventory of 2 million
customers in 157 countries with
Clear Spider’s VMI Solutions.

Est. 1927
BEFORE CLEAR SPIDER
Grainger was experiencing a high
WHAT
level of growth. They needed a
solution that could handle the size
GRAINGER
and complexity of their operations
while working to boost efficiency.
NEEDED
Headquarters:
Lake Forest, Illinois

Reduce the workload on

THE CLEAR SPIDER
sales force to enhance SOLUTION
customer service levels.

Cut operating costs while

Streamlined Role Based
maintaining sales growth
Communication Flexibility
to increase revenue.

Solution needed to be
flexible and scalable to
Automatic Scanning
grow with the organization
Replenishment Capabilities

IMPLEMENTATION RESULTS
- Quick to Deploy - Closer Customer Relationships
- Easy to Use - Decreased Inventory Costs and
- Low Cost to Maintain Associated Procurement Costs
- Increased Sales and Revenue
Mobile Solutions make
re-orders easy and
accommodate real-time
data and notifications.
Today, over 100,000 companies use Clear Spider
on a daily basis.

Clear Spider is a web-based inventory

management solution for companies to manage
either their own inventory or the inventory of
their customers and suppliers. There is no
hardware or software installation, so
deployment is quick.

Clear Spider is easy to learn, use, and maintain.

Interested in learning more?

Contact us to discuss your vendor managed
inventory needs.

Today, over 100,000 companies use Clear

Spider on a daily basis.

Call: 1-855-90-CLEAR (25327)

Email: info@clearspider.com
Website: www.clearspider.com