Vendor Managed Inventory (VMI in short) is a supply chain collaboration largely based on transparency and openness between the buyer and the supplier. The supplier regularly receives information about buyer’s production plan and inventory data. This gives the supplier an overview of demand and the autonomy to make independent replenishments, ensuring a stable availability and continuous supply of goods. In addition, the customer has the opportunity to keep a safety stock, a buffer which absorbs fluctuations and enables a faster delivery time in a changed market situation, at supplier’s premises.
To work effectively, electronic data exchange and proper IT support systems are essential for VMI.
A great example of effective VMI cooperation is between Estiko and its long-term partner Orkla Eesti, whose candies, snacks and chocolates are well-known and dearly beloved by Estonians. Therefore, it is particularly important for Orkla Eesti to ensure a stable supply of packaging solutions for these product groups. This is exactly the purpose VMI fulfills.
“Our portfolio purchased from Estiko is relatively large, containing about 300 different materials. Managing these inventories manually would be extremely labour intensive. Hence, we saw VMI as a great opportunity to reduce our workload and give Estiko as our packaging supplier a much clearer idea of how to better plan both purchase and production of different materials. The VMI solution proved to be particularly useful in today’s shortage of packaging materials, where predicting future needs is extremely important in the long run to make right purchasing decisions,” said Peeter Kibe, Senior Procurement Manager at Orkla Eesti.
On the example of Orkla Eesti and Estiko, there is an automatic data exchange between the two, in which the packaging supplier sees and analyses Orkla Eesti’s production plan and inventory levels. Estiko is then responsible for ensuring that inventory levels stay within agreed inventory limits. When levels decrease, Estiko has the right to create additional orders in buyer’s warehouse and ensure that permitted levels are met by delivering needed packaging and materials on time.
“VMI gives the manufacturer the opportunity to optimise production quantities, thereby increasing efficiency and offering the best value for money to the customers. By helping to manage our customers’ inventories, they can invest their time in other value-creating activities,” commented Meelis Jürgens, CEO at Estiko.
Although the system is not fully used yet due to ongoing packaging projects, Kibe estimates that the work of Orkla Eesti’s Purchasing Specialists is already significantly more optimised and is very satisfied with Estiko’s VMI service. “The timing of the introduction of VMI has been excellent in our view. Despite turbulent times, all necessary packaging materials have been available for our production sites. We hope that by the end of 2022, we are able to fully implement the system,” said Kibe.
To enhance your packaging solutions via Estiko’s VMI system, please contact our experts today.