What Is VMI And How Does It Benefit Distributors?

The second part of this four-part article explains the many benefits of VMI.

Giant online sellers thrive in today’s technology-centric world by making it increasingly easy for customers to spend their money. VMI takes a similar approach. By setting up a system that completely, or near completely, removes the customer from the purchasing decision, a distributor essentially locks in continuous sales.

That security can even increase margins by 3 to 5 percent since the customer often won’t mind if the distributor charges a little bit more for the products, says Greg Truitt, president of Sikes Paper Company in Atlanta.

“In the scheme of things for them, that spend is not going to break their back,” he says. “They’re just looking for someone to take something off their plate.”

Why would the customer agree to do this? Because, to most customers, counting inventory is an inconvenience, which means they look at VMI as customer service.

“Most [jan/san distributors] are selling commodity-driven products, so how do you differentiate yourself?” says Raffo. “One way is service. The other way is technology. So now you’ve combined technology with service.”

Customers also like VMI for the simple fact that they don’t like running out of product. Raffo says running out of product is a customer’s biggest concern. If a distributor does VMI correctly, it can essentially guarantee the customer won’t run out of product.

Space concerns can also convince customers of the benefits of VMI, says Hestenes. If a customer’s distributor has guaranteed that the customer won’t run out of product, then the customer doesn’t need to store large amounts of that product. That, in turn, can benefit the distributor, since the distributor doesn’t have to worry about filling last-minute, emergency orders.

“Look at how much effort a distributor has to put forth every time there’s an emergency order,” says Hestenes. “It’s a losing deal for distributors. This prevents that. Plus, if the person doing the counting is a sales rep, which it usually is, then isn’t that another opportunity to see what else is going on in the account?”

All this makes VMI a useful sales tool for distributors.

“It’s really, for us, one of those intangible benefits that we bring to the party,” says Truitt. “It helps you really foster and cultivate that relationship with the end user, which still means something in today’s world.”

Indeed, Truitt says the suggestion to start a VMI relationship with a customer typically — but not always — comes from the distributor, not from the customer. If distributors don’t often think about VMI, that goes double for end users. A lot of Sikes Paper’s customers don’t even realize VMI is a possibility until the distributor offers it. And Sikes offers the service to every customer.

“It enables us to build, strengthen and solidify a relationship with a customer, and become an invaluable resource,” says Truitt. “At the end of the day, your goal, outside of maintaining that relationship, is to increase the divorce cost. That’s what we’re all trying to do.”