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VMI potential in the Baltics

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In Switzerland 85% of all the products in retail sector are supplied using VMI strategy. 85%! In comparison, the VMI usage in Estonian, Latvian and Lithuanian retail sector is just marginal.

In spring 2013 Triinu Kollamaa, the student of Supply Chain Management of Tallinn Technical University, researched 64 retailers in Estonia in her Bachelor thesis discovering that only one retailer out of 34 respondents empowered its suppliers to automatically replenish the goods in its stores. The next best case was sharing the POS (sales and stock balance) data with suppliers, also called visibility.

Although the study showed that the knowledge about VMI among respondents was quite good (59% answered good or very good), and retailers do understand the benefits of VMI, the VMI as an efficient purchase and supply strategy is still very wiry to expand. The main reasons for not using VMI, among other things, include:

  • Retailers do not trust suppliers enough to empower them for self-replenishment
  • Changing business processes can be too complex.
  • Implementation of VMI should be initiated by the suppliers.
  • Suppliers must be able to demonstrate their competence in VMI to retailers.

With this retailers made suppliers accountable for not using VMI, quite in a large extent.

There are a lot of small suppliers in the retail sector who have used to work the way they do. Eventually, I have noticed that many suppliers have no knowledge about more effective approaches such as VMI. The other aspect would be technical – many ERP systems just do not have the VMI functionality, nor are the VMI soft wares widely spread in the Baltic States, to provide the tools for VMI. Thus suppliers very often simply lack the knowledge or tools for establishing VMI relationships with their partners.

How to build trust and become more competent?

Like usually, common sense often helps a lot. Sales and stock balance data of the stores is an excellent source of information when talking about the sales performance of your products in stores. Analysing the real sales and stock figures of a particular store usually help suppliers to better see the demand and changes in demand, and thus recognise the potential need for replenishment. It also shows the items selling/not selling, and reveals the potential problems to take preventive actions. Even if you are not able to actually do the real VMI, start with information – it’s called visibility. Agree it with your partner and start receiving the POS data. It is really easy with EDI providers like Telema. Start training yourself to look at the data regularly (make it a habit), analyse it and start making proposals to your partner regarding deliveries/replenishment, changing products, draw attention to problems and ask questions, do it in cooperation with your partner’s purchase manager. Having done it for a while, your partner will see your interest, professionalism and commitment to actually sell your goods, and will open up the road for the real VMI sooner or later. The next step would be applying for actual replenishment rights.

Solutions and implementation

Technical implementation of VMI or visibility, besides the business level decision and agreement, is a piece of cake, and not that expensive at all. Special, complex and expensive software with months of implementation and thorough user training is not necessarily a must for starting with VMI or visibility. Telema provides the basic, yet smart and easy web based VMI application that can be activated within just days, and that you can start with and evolve from there on as you improve. Telemas VMI application incorporates the sales and stock analysis with different metrics like current stock, days sales covered, average daily sales etc, and provides tools to generate an order just in a few clicks. The order will be sent to suppliers own ERP system for further processing. The monthly costs of the solution may be even as low as 3 euros per shop.

Obviously it should be acknowledged, by both parties, why you take up doing VMI/visibility and what are the concrete objectives that you look to achieve. When it comes to supplier side replenishment decisions and automatic deliveries, the VMI relationship must also be supported by the respective contract.

Telema network incorporates over 1100 shops of 25 retailers in Estonia, Latvia and Lithuania that are technically able to and business wise willing to share POS information with their suppliers. Considering that it makes roughly about 1/3 of all shops in the network, the will, ability and readiness by retailers actually exist. In respond, suppliers need to show up their interest to go for it.