Nestlé switches to vendor managed inventory with Tesco

Nestlé is switching to a vendor managed inventory (VMI) relationship with Tesco this year in a bid to improve availability.

By shifting responsibility for managing stock levels from the retailer to the supplier, VMI is designed to reduce buffer stock in the supply chain, help suppliers plan production more efficiently and optimise transport, said Tesco food supply director Joe Dybell.

Nestlé will join 14 other suppliers that are now raising their own purchase orders based on sales and stock data supplied by Tesco, he said."There is no question that VMI can improve availability, but it only works if business processes change. Otherwise, you are just shifting responsibilities and costs on to your supplier rather than adding any value.

"But done properly, VMI can make an enormous difference to availability, because suppliers are typically dealing with just a handful of SKUs rather than the hundreds or thousands that the buyer is responsible for.

"In 2003, the hottest summer for 45 years, Coca-Cola was at 98% availability in our stores because of VMI, whereas we were achieving something like 67% across the category."

Typically, one of the VMI supplier's team is 'implanted' into the Tesco team for planning purposes, he said. "The job is not a transfer -- we have not reduced our headcount as result of VMI. The role is different."

Despite the success of initiatives such as VMI, more than a million cases still didn't arrive at Tesco depots when they were supposed to each week, claimed Dybell.

Speaking at the Food and Beverage 2005 conference in London, he said: "Half of our top suppliers deliver what we want, every week. Others continually fail. They must be more agile, adaptable and aligned to customers."

Although Tesco was now responsible for the collection of goods from many suppliers following the roll out of factory gate pricing, this had not had a significant impact on availability, he said. "Just because it's a Tesco lorry or our haulier turning up at the factory does not mean goods are ready when we arrive."