But as commercial and environmental pressures forced the industry to look again at the structure of its supply chain, VMI was certainly worth exploring, said FSDF president Malcolm Johnstone, who is also md of Associated Cold Stores & Transport (ACS&T).
By shifting responsibility for managing stockholding from manufacturers to key packaging and raw materials suppliers directly or via third parties, VMI is designed to reduce buffer stock, help manufacturers plan production more efficiently and optimise transport.
In effect, the manufacturer no longer places ‘orders’, but hands over responsibility for replenishing stocks (along with the cost of capital in purchasing stock and storage costs) to key suppliers – who are in turn given access to manufacturers’ production plans and forecasts.
“The majority of food manufacturers still store ingredients in-house and order stock from each supplier separately. This means manufacturers have to bear the cost of storage, as well as paying for transport on a ‘by the pallet’ rate,” said Johnstone.
Lower storage costs
By adopting VMI, manufacturers could push back the cost of storage to suppliers and receive consolidated pallets/trucks of stock directly to their sites as required, freeing up space, reducing delivery costs and administration time, he claimed.
Manufacturers using ACS&T’s ‘production support’ service such as seafood giant Young’s have given ACS&T responsibility to work with their suppliers to supply their factories with selected raw materials and packaging. ACS&T manages the inventories and delivers daily consolidated consignments to these manufacturers from a facility in Grimsby, explained Johnstone. “We also provide real-time stock summaries via a website so clients can see how much inventory we are holding at any one time.”
The firm had a similar arrangement with Grimsby-based Kwok Foods until the firm went out of business late last year after its biggest customer (Asda) withdrew a large tranche of business, said Johnstone.
“There is increasing pressure from retailers for more frequent deliveries, which may not be economic for manufacturers or ingredients suppliers, but by offering production support services, we can enable ingredients suppliers to deliver in economic order quantities while helping manufacturers be more responsive to their customers.”
Local supply chains
Increasingly, predicted Johnstone, we might also see a move away from the centralised supply chains of the 1990s towards a more localised approach, with stocks held by third parties such as ACS&T closer to manufacturing facilities, rather than in manufacturers’ “vast cathedrals of stockholding” on the M1 and M6.
GS1 UK business consultant David Weatherby, said: “VMI tends to work best with strategic suppliers – you see Unilever and Procter & Gamble doing it with packaging suppliers for example. But it requires trust on both sides as to make it work you have to share information with your suppliers about your short, medium- and long-term production plans and forecasts.
“But by giving suppliers this information, you are helping them plan their production more efficiently and ultimately, both sides should benefit.”