VMI: Changing the Way Business is Done

Case Study

In the business world few things are as scary as change. The very thought of an upcoming change can be a distraction at all levels of an organization from entry-level to C-level. One of the main reasons for the disruption and productivity is that employees understand the way things are currently done that have no idea how things will be done after the change. They often fear that the success they have enjoyed in the prior work may not produce the same results with the change has happened.

Here is a case study about the implementation of the new vendor managed inventory (VMI) program at Kmart. The poster for part of the program was transferring the creation of purchase orders from Kmart’s own manage staff to allowing the actual salespeople to write their own purchase orders.

The Symptoms.

Although some people of the program from the get-go others were afraid allowing Kmart suppliers to write their own orders would lead to over purchasing merchandise to make the salesperson look successful. Not everyone took this point of view. Many of the buyers have full faith and confidence in their suppliers. They felt that the suppliers would act responsibly in order to maintain good relationships with Kmart.

Opponents of the program felt that sales quotas for vendor overstocks were too tempting to allow consistently proper orders.

The Diagnosis.

Actual results of the program were strong however there were exceptions to peak performance. Through critical analytical thinking it was realized that the caliber of the individuals placing orders crossed a broad spectrum.

At some companies the orders were being placed by individuals directly accountable to the salesperson while another company’s customer service handle the ordering. Those reporting to the salesperson seemed to only be as good as a salesperson’s desire to build strong business. Some were taking advantage of the process but for the most part there was a true dedication to long-term performance.

The same results coming from those working the customer service department. Upon further examination it was learned that the different thought processes of the manufacturer versus a retailer could create situations where the retailer would see themselves as being overstocked. Often these were the results of the desire to create full pallets or full layers within a pallet. Also the process to create turn at a manufacturing or distribution center level were radically different than the methodology used to store level.

The Prescription.

Because individuals placing the purchase orders are no longer Kmart employees and under direct management of Kmart executives it was determined that the best approach would involve superior communication. The newsletter was developed to drive competition between companies and to provide an educational forum through which all those placing orders could learn. The communication could not just go to the suppliers because Kmart’s own staff also needed to learn about the performance within the program. A weekly newsletter was developed for the program’s early days. As the educational curve improved the newsletter was changed to a monthly periodical.

Future Prognosis.

The understanding of the program increased at all levels of internal and external management. Those consistently performing at the low end of the scale were given opportunities for improvement. Eventually someone have to be replaced at some companies are dropped from the program entirely. Despite these isolated poor performances, the supplier base as a whole one of the program to succeed in companies took great pride in their participation in the program. Statistically the program was a tremendous success as store and stock rates increased while store level turn also increased.