●More value for the customer’s customers, including faster and better
responses to new needs and opportunities.
●Enhanced leverage with technology, including earlier access to new con-
cepts and more control over technological change.
●More powerful competitive strategies, gained when a customer adds its
supplier expertise to its own.
One example of win–win thinking that is beginning to emerge in
supply chains is the idea of Vendor Managed Inventory (VMI) or –
a subtle variation – Co-Managed Inventory (CMI). The traditional
approach to replenishment at each step in the chain has been for the
customer to place an order on a supplier. Typically there would be
no early warning of requirements from the customer and thus the
supplier would have to carry inventory in the form of safety stock
as a ‘buffer’ against this uncertainty. Similarly, the customer would
also carry safety stock of the same items to guard against the possi-
bility of non-supply. The result of this conventional ‘arms’-length’
approach was higher levels of inventory in the chain and paradoxi-
cally lower levels of service and responsiveness.
The idea behind VMI is that the customer no longer places orders on
the supplier, but instead shares information on actual demand or
usage on a continuing basis. Because the supplier now has ‘visibility’
of the rate of off-take lower down the chain it can plan and schedule
production and transportation more efficiently, duplicated inventories
are greatly reduced, service levels improve and the customer’s cash-
flow is enhanced because they only pay for the product as they use it.
Co-managed inventory (CMI) is a further extension of the idea
whereby the customer jointly plans with the supplier appropriate
inventory levels taking into account promotional activity, specific
local conditions, competitive activities and so on. In either case, VMI
or CMI, what is happening is what might be termed the ‘value-
added exchange of information’. Value is created through more
responsive supply as a result of customers providing suppliers with
information on off-take or product usage.
The key to supply chain integration is shared information. By
working to the same data on demand, inventories and marketplace
trends, a much more cost-effective logistics process can be developed.
Under the conventional model – where no information is shared –
both the supplier and the customer had to carry inventory on a ‘just-
in-case’ basis. The supplier carried inventory because they had no
forward notice of customer requirement. The customer carried inven-
172 Relationship Marketing