Datalliance tackles the math of VMI

The unknown variable of inventory replenishment is the topic of a new blog released this week by Datalliance.

In Monday’s piece “It’s Not About the Math,” Datalliance’s Edward Kuo, director of sales, Motor Vehicle segment, writes VMI thrives in the aftermarket not just because of its complex stocking formulas, but also thanks to the comprehensive data VMI vendors can acquire about each variable within the equations.

Writes Kuo, “No matter how sophisticated the math formulas are (and believe me, there are a number of high-end software packages that are excellent at calculating), the end result is only as good as the data provided.

“Most buyers base their decisions off the data in their own business systems — including their sales and inventory position. Many add additional inputs such as their knowledge of how long it take to put the product away and the overall stocking philosophy of the distributor; e.g. in-stock percentage and turns goals. With these data points, the buyer can roughly determine inventory positions and the weekly orders required to meet their needs.

“But this replenishment approach uses an incomplete data set. There is information the vendor knows that the buyer is guessing at. Knowing actual package sizes and item numbers are mandatory.”

VMI pulls in that information, he says.

“In a Vendor Managed Inventory situation, the vendor maintains this data accurately in the system and when combined with the data provided by their customers’ business systems, vendors are able to create better orders.”

For more of Kuo’s comments on VMI, please check out his blog here.

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