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Supply Chain Insights LLC Copyright © 2014, Vendor Managed Inventory Study Summary Charts December 2013 - June 2014

Vendor Managed Inventory Summary Charts - 24 JUN 2014

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Executive Overview Vendor Managed Inventory (VMI) processes were developed in the 1980s. The stewards of today’s VMI processes inherited the relationships. There has been very little change in process definition; but, the strategic nature of accounts participating in the VMI relationships has changed. When the processes were defined, the relationship concentration was with bigger and more strategic mass-merchant accounts. Today, the average company has 12 relationships across a variety of small accounts. The largest concentrations of relationships are now in the drug and dollar channels. Today, most companies take VMI relationships for granted. Business leaders are not aggressively looking at VMI programs as a source of valuable demand data. However, based on the data from this report, we think that the questions should be, “Are we maximizing the value? Should we rethink the processes to drive even greater value?” All companies interviewed for this report were getting value from their VMI relationships. The value proposition was either in shorter order lead-time, a reduction in logistics costs, or improved order reliability. Multiple companies commented that VMI enabled greater flexibility in managing the product portfolio, and ensuring data accuracy of the orders. In a time when growth has slowed, and complexity reigns, we ask “Shouldn’t VMI be a hot topic?” Today, it is not. Instead, it is taken for granted. It is the goal of this report to rekindle the thinking on an old process that is largely being taken for granted. Summary In the last five years, the number of products for the average Consumer Packaged Goods (CPG) company increased by 25-33%. The product lines are more complex. Retail order accuracy has not improved. Yet, VMI processes have not been redefined to drive more value. The stakes are higher. The cost to develop a new product increased 4X and the failure rate of a new product is high. Retailers are selling more and more volume of house brands. Amazon is redefining the channel. VMI helps to improve order reliability in changing product portfolios. Suppliers to retail are under constant pressure to reduce lead-times and improve costs. Growth has slowed and more and more companies are being asked to adopt retail-specific programs. As a result, it would seem that the value of VMI would be obvious. It is not. Perhaps it is time to rethink the equation? Redesign the processes? We think so.

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Vendor Managed Inventory Study

Summary ChartsDecember 2013 - June 2014

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Agenda

Study Overview

VMI Overview

Most Familiar VMI Relationship

Supply Chain Performance

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Study Overview

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Definition Given to Respondents

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All Respondents Are Familiar with VMI Processes and Four in Five Are Involved with Them

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Most Work in the Consumer Packaged Goods; the Rest Work in Food & Beverages

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The Majority of Respondents Are in Customer Service or Business Leadership; 37% Are Director or Above

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Agenda

Study Overview

VMI Overview

Most Familiar VMI Relationship

Supply Chain Performance

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On Average, Respondents Report 12 VMI Relationships

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Half Report Number of VMI RelationshipsStayed the Same in 2013 vs. 2012

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Agenda

Study Overview

VMI Overview

Most Familiar VMI Relationship

Supply Chain Performance

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VMI Relationship Focus

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Shipments Are More Often Sent to Retailers’ WarehousesThan to Retailers’ Stores

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For Most Familiar VMI Relationship, Most Can Write the Order

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VMI Relationships Perform Best on Managing Customer Service, Business Partner Relationships & Alerting of

Potential Out-of-Stock

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VMI Relationships Most Likely to Perform Better/Same on Managing Customer Service, Business Partners, Order Management Reliability,

Supply Chain Planning, and Achieving Perfect Orders

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On Average, Most Familiar VMI Relationship Take Less Time to Ship to Retailers Than Non-VMI Relationships

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On Average, Most Familiar VMI Relationship Take Less Time to Ship to Retailers Than Non-VMI Relationships

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VMI Relationships Most Familiar with Tend to Havethe Right People and Leadership Support

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71% Report That the VMI Relationship They Are Most Familiar with Is “Strategic”

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Most Common Tools Used in VMI Relationship Most Familiar with Are EDI / XML and

Supply Chain Management Software

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66% Consider Their Company to Be Mature In Managing Most Familiar VMI Relationship

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VMI Relationship: What’s Working Well

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VMI Relationship: Challenges Facing

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Agenda

Study Overview

VMI Overview

Most Familiar VMI Relationship

Supply Chain Performance

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On Average, 8 Functions Report Through the Supply Chain Organization

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Most Common Supply Chain Agility Definition:Recalibration in the Face of Market, Demand and Supply Volatility While Delivering Comparable Cost, Quality and Customer Service

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Nearly All Consider Agility Important But Only 45% Think They Achieve It

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Manufacturing & Procurement and Sales & Marketing Are Among Most Important to be Aligned and Most Aligned

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Greatest Gaps in Alignment vs. Importance:Sales & Operations, Marketing & Finance,

and Operations & IT