Technology Today: 2.4.2010

Streamline with VMI

Kirby-Risk finds efficiencies and productivity increases with VMI implementation

In Lafayette, Ind., VMI is a key component for distributor Kirby Risk and its overall supply chain strategy.

“Today, many of our leading suppliers, including Hubbell, Ideal, Rockwell, Siemens, and Thomas & Betts are using VMI, explained Joe Hart, Kirby-Risk’s director of purchasing and material management. 

“In addition, we are also working with other key suppliers to discuss the implementation of VMI Eventually we plan to do include 10-14 major suppliers. When we get to that point, 80% of our inventory will be managed by VMI,” said Hart.  

VMI allows Kirby Risk to look at things from a variety of angles, analyze individual supplier relationships and performance, and manage their business more effectively – supplier to supplier.

“Our suppliers know their products better than we will ever know them, explained Hart.

“VMI helps us to work more collaboratively on how to best sell, stock, position, and promote their individual products.  Before using VMI, we did not have the time or the information to do this type of analysis. We now work with our suppliers to build a stocking plan to maximize sales and launch new products into the marketplace,” he said.

VMI Supports Most Efficient Supply Chain Model

“We went to a model of one central distribution center to support our 38 branches with VMI managing stock replenishment for the central distribution center with our key suppliers, continued Hart. 

“This streamlined model ensures a high level of fill rate, while at the same time being very efficient and cost-effective,” he said.   

Kirby Risk previously operated a central distribution center with five smaller, geographically dispersed distribution centers. Each of the smaller distribution centers served a handful of branch locations – a hub and spoke configuration. 

Hart recalled that the company “had duplicate inventory at the central and smaller distribution centers.  A branch could order from their distribution center, but if needed, could also go directly to the central distribution center to satisfy customer needs. By eliminating the small distribution centers, we now consolidate inventory at the one central location from which all branches pull. This demand consolidation allows VMI to manage and replenish inventory in larger quantities and more frequently from our main suppliers – taking advantage of economic order quantities and cost-effective shipping rates and discounts,” he said.

Today, Kirby Risk sends customer demand transactions from all branch locations on a nightly basis. “If the customer need is not same day or if we cannot satisfy same day need at the branch, then the order is placed on our central distribution center, explained Hart. 

“The order is picked, packed and delivered to the branch so it can be picked up by the customer or cross-docked to a delivery route to a customer.  The product is delivered to the branch by 7:00 the next morning.   VMI keeps this process running smoothly by monitoring the daily branch demand, anticipating future demand, and issuing replenishment orders with suppliers as needed,” Hart said.

For Kirby-Risk, efficiency is at the top of the list of advantages for both the branches and the central distribution center.

“This practice allows us to have fewer, but more experienced people at the branches to serve our customers, Hart noted. 

 “The central distribution center, which carries over 50% of our total inventory, is radio frequency and bar code enabled. Everything in the building is bar coded, so we receive and pick with radio frequency bar code scanners, a process that significantly improves the accuracy of our inventory at the central distribution center, ” he said.  

Increased Inventory Visibility

Kirby Risk regularly moves excess inventory from individual branch locations back to the central distribution center – allowing the sales organization and VMI visibility over this inventory.

“By giving VMI visibility of excess inventory, we are able to reconsider this inventory and use it to satisfy ongoing demand across all branches in lieu of placing new orders with suppliers, explained Hart.

“The result has been a significant cost savings in that we have reduced returns to our suppliers by about 20%. 

“VMI helps us better manage our fast moving, high volume items which account for approximately 75-80% of total inventory.  For our lower demand or slower moving items, VMI has helped reduce our inventory to levels that still support demand, but minimize our inventory investment,” said Hart.

Inventory Quality at all Time High

For Kirby Risk, the greatest benefit from VMI has been the quality of data and transactions. Quality data and clean transactions support the process improvements and efficiencies that they have built into their daily routine.

“In the past, there were a number of ways for errors to occur on purchase orders to our suppliers, noted Hart.

“For example, information such as item description, UPC, or packaging specs could be incorrectly documented on the purchase order.  If the error was not caught by the vendor or if purchase order information was changed by vendor without notifying us, we would encounter delays in receiving the items, processing accounts payable, delivering the item to our customer, and billing our customer.  Any errors encountered early in the process had a snowball effect, and it required a lot of man hours to resolve these issues. 

“We use VMI from www.datalliance.com which verifies all of the critical information before the purchase order is created and prior to any communication with the supplier. If the system detects a potential problem, we resolve it up front, at the very beginning of the process. This ensures that our purchase orders are clean before they go into our system, which means we get the correct product in a timely manner from our suppliers.

“The impact of this greatly improved process is realized in improved customer service, reduced returns, some decrease in inventory, and a more efficient process that requires fewer man hours to manage and trouble shoot. Today, we don’t hear issues about out-of-stocks that we used to hear on a regular basis. Our fill rates are much improved. Our customer service is enhanced, and our inventory quality is at an all time high,” Hart concluded.

The single biggest impact of VMI for Kirby-Risk is a significant improvement in the quality of both data and transactions.  This quality of inventory accuracy provides the greatest advantage of VMI for Kirby Risk.