Vendor Managed Inventory Software

Case Study: Warehouse Service Built with Erply Vendor Managed Inventory Software

The best things in life are free. This might not be entirely true, Erply certainly is a tool, which you can use to build a whole new profitable service. We have brilliant example of a highly successful hardware company, offering Vendor-Managed Inventory service, based on our software.

erplyceowarehouse

For decades, Alas-Kuul has been providing hardware to industrial companies. They sell, rent and service a long list of welding equipment, plasma and gas cutters, compressors, vacuum pumps, compression springs, relays, electric motors, frequency inverters, couplings, seals, washer, ratchets, pawls, bearings, racks and many other equipment, parts and components.

They have become the number one parts and equipment provider for hundreds of large industrial companies in Estonia, and have now expanded their business to Riga, Latvia, where one of the biggest Baltic Sea ports is operating.

Vendor-Managed Inventory Built on API

There is obviously a strong need for advanced inventory management, and Alas-Kuul has been using inventory management software for years already. Being a hardware distributor, their normal role in ICT technology ecosystem is to use software services. All of the sudden Alas-Kuul is doing the opposite: they offer Software as a Service to their customers. They are now one of the leading providers of Vendor-Managed Inventory (VMI) service in the Baltic region.

So how does this work? Recently, we wrote how APIs let you create customized applications that your clients need. This is exactly what Alas-Kuul has done: used Erply’s retail software backbone to build a business to business (B2B) software service with a great level of automation. Warehouse management is now one of their four main business areas, and it is growing in a fast pace.

This is how vendor-managed inventory works:

1. The client introduces their order nomenclature and manufacturing process. According to his, Alas-Kuul stores all the materials and parts in their own facilities, cost-free for the client.

2. Alas-Kuul takes full responsibility that the materials and parts are ready for the client in correct quantities and in the right time. Alas-Kuul takes care of stock replenishment and sourcing, and maintains optimal stock levels.

3. Alas-Kuul provides their clients with a web service that delivers clear and quickly readable reports on stock levels, orders, bills and offer of the materials and parts.

The Benefits of Vendor-Managed Inventory

For a vendor, there is an evident advantage in building a long term alliance with a customer. It greatly reduced business volatility risks and helps to keep a steady cash flow. A vendor also gets to know the customer better, and can thus provide better service, resulting in mutual business growth.

For a client who gives its inventory management to a vendor, there are four major benefits.

1. Company’s financial resources that would have been occupied by stocked material and parts, can be put to use elsewhere.

2. Significant cost cuts on sourcing the materials and parts needed for manufacturing. It takes less work, time and transport costs, and most probably the vendor can offer favorable pricing.

3. Real time reports on all the materials and parts, orders, bills, expenditures and stock levels.

4. Comfortable billing, payment automation, and financing by factoring as an option.

 

“We have built the service flexibly, starting from what our customers need,” tells company’s CEO Indrek Orro. “The service can be adopted to any industry. Already 30 manufacturers have subscribed to our VMI service, and have already calculated significant cost cuts, not to mention the unprecedented smoothness or sourcing process.”

 

The physical storage of parts combines the capabilities of vendor’s and customer’s warehouses, which are both managed from one central inventory management software interface. If the parts are stored already by the customer already, an employee there finds it quickly according to the barcode. As the part is taken into use by the customer, the inventory management software automatically orders a new piece from vendor’s central warehouse, or supply source. As the manufacturing plant practically does not run out or materials and parts, the likelihood of disruptions of manufacturing process is extremely low.

 

From Central Warehouse to Cross-Docking

Alas-Kuul started its business as an intermediate and local maintenance representative for large Scandinavian industrial hardware and equipment providers. The company gradually decided to source the parts from original manufacturers, which led to 25-30% cost cut.

 

As the sales volumes grew, Alas-Kuul had to turn their attention to logistics. Not only let logistics management provide better pricing; the efforts resulted in much smoother operations and fast delivery times. The goods that arrive to the central warehouse location, are dispatched daily or several times a day. In many cases, even a large order made in the morning is fulfilled in the afternoon, even if the client is located hundreds of miles away.

 

Yet another feature that gives Alas-Kuul a great competitive advantage, is cross-docking. Cross-docking is a practice in the logistics of unloading materials from an incoming truck or railroad car and loading these materials directly into outbound trucks, trailers, or rail cars, with little or no storage in between. It does ask for advanced retail and inventory software but the cost cuts on transport, stocking and re-stocking can be immense. Multinational retail corporations like Walmart have been highly successful in using cross-docking practices to lower retail costs.

 

Alas-Kuul moved to cross-docking practices gradually, just as their inventory management software evolved. Now their inventory management is based on Erply enterprise management suite. While small quantities or diverse orders go through the central warehouse, a large part of the larger orders are packed already in manufacturer’s facilities, and are shipped to customers without even touching the shelves in the central warehouse. Again, not only a cost cut is involved; customers also receive their parts and equipment in shorter delivery time.

 

In-House Warehousing

Vendor-Managed Inventory means that a vendor and a manufacturer are partners, rather than having a supplier-and-client relationship. This partnership is a win-win situation in many way. One of the applications is In-House Warehousing, also called In-Plant Store.

Alas-Kuul is among the leaders of innovation, as their In-Plant Stores are widely used by Estonian producers. The parts that normally would be ordered and paid by the manufactures beforehand, are now stored in the factory but still owner by the vendor.

If a part is needed, an authorized employee just takes it from the automated storage cabinet, and only then the transaction is registered. Depending on the industry, both barcodes and RFID tags are used to count the parts. Inventory software shows the demand for certain parts, so the vendors can easily predict the correct stock levels. Their customers save money, as they don’t have to risk overstocking, and don’t have to pay for parts they are not yet needing.

 

Distributor as a Provider of Full Service

After implementing Erply’s enterprise management software, Alas-Kuul now works in four profitable and growing business areas. It sources and sells hardware, rents it, services and repairs it, and also helps their customers to manage warehouses and inventory. For a manufacturer or a building company, this kind of partnership means full service and a substantial gains in time saving and spending cuts.

“Our aim is to be smart company,” company’s CEO Indrek Orro tells. “It’s not really necessary to keep huge stocks and risk stock overflow. It’s much better to arrange your operations so that your client receive their orders fast. Partnership with Erply is a highly valuable experience, because their professionalism has helped a build a whole new service.”

Mr. Orro: “We are different from our competitors, because we can offer an excellent full package that consists of parts and equipment, which we are able to service, too. And we’re the kind of partner who knows how our clients work and which machinery they use. Amazing where how far from the concept of a simple “salesman” have we moved. Now with the warehouse and inventory service we offer, we have moved yet another step to the future. A step ahead of our competitors.”

To find out how can your company start making money with an API based software service, please call us today at 1-855-463-7759 or schedule a free demo. The possibilities are countless, including automatic stock replenishment, RFID based warehouses, integrated retail and e-commerce and cutting edge logistical services.

 

Behind the Scenes: In-Plant Store and VMI

This is how some industrial suppliers and manufacturers make more money than their competitors: they manage their inventory in an entirely novel way. Around the globe, Vendor-Managed Inventory (VMI) solutions are not yet widespread. How does it work? Let’s ask the guy who knows the most.

 

Mr. Martti Paju, now based in London, UK, is from a small European country called Estonia. Estonia is the birth place of Skype, Transferwise, electronic parliamentary elections, and many other innovation. No surprise that Estonia has served as a testing ground of Vendor-Managed Inventory systems.

For years, Mr. Paju has been consulting large enterprises, making their operations run smoothly and increasing profits. Mr. Paju is Erply’s board member and takes care of retail software product development for retail and industrial companies. I interviewed him to hear more about the innovative technology and how it was brought to life.

 

What is the essence of Vendor-Managed Inventory software and hardware system?

To put it short, vendors sell more and their clients can work more. Both make more money and optimize their businesses.

A manufacturer never runs out of parts, and does not have to spend money on large stock. It’s a win-win situation, as a vendor can sell more and predict sales more precisely.

In addition, the vendor can keep an optimal supply ready at manufacturer’s facilities – this is called In-House Warehousing or In-Plant Store. Imagine, the factory always has supply but does not have to pay for parts before these are used!

 

Where is Erply’s VMI system already used?

Erply conducted major VMI implementation in cooperation with Alas-Kuul Ltd. Alas-Kuul is the leading vendor of parts, hardware and machinery in Estonia and Baltic region. Basically, all Estonian manufacturers are their clients, and most the bigger production facilities have their supply managed with vendor’s inventory software.

Though there is a lot going on in enterprise management software back end, probably the most noticeable invention you see in a production plant, is an automated storage cabinet or storage room.

It has taken around 2 years to implement the Vendor-Managed Inventory in Estonian companies, and now the service is moving to Scandinavia, United Kingdom and United States.

 

How is an In-Plant Store managed?

The parts are locked up in a storage cabinet or a storage room in the production plant. Each part has a barcode or an RFID tag. If anything is needed – for example an end mill for CNC cutter – , authorized personnel just takes it from storage, and registers the transaction with barcode or RFID reader.

Each stock item has minimal and maximal storage levels. If the customer has arranged automatic ordering process, the vendor just ships new parts, when minimal storage levels are soon to be reached. Both the client and the vendor have real time overview of the warehouse stock levels.

It all sounds sophisticated but is actually dead easy to use. You log into the web service and there it is, your warehouse with all stocked products. Your expenditure, seasonal and regional stock level analytics, and lead times – it’s all there. If a large scale job is coming in, the manufacturer can raise the stock levels in just few clicks.

It’s amazing that so many manufacturers still do physical stocktaking. There can easily be 200 persons working in one shift, and often they are all kind of responsible for keeping sufficient amount of parts in stock. Inventory management should not be welder’s job. These are the problems Vendor-Managed Inventory eliminates.

 

The In-Plan Store technology is really new. How did you arrive to this?

As of 2012, Erply has implemented a wide range of enterprise software in Alas-Kuul. Not only classical Enterprise Resource Planning but software products for customer management, B2B bulk ordering, and even service and maintenance management for industrial equipment.

Erply’s inventory management software has an API, which means you can use it as a backbone for any kind of inventory, warehouse and production monitoring applications. So soon we were providing Alas-Kuul with an inventory solution they offer to their clients as a warehouse management software service.

Alas-Kuul is focused on wholesale. They want to sell in bulk quantities, as this reduces transportion costs and they can offer better pricing. Their clients on the other hand are not so happy to buy a large stock of parts, so we immediately came to automatic in-house storage solutions.

Software back-end was easy to put to work – Erply’s ERP and inventory is perfect for that. It took a while to finalize the in-plant hardware. We first wanted to go RFID-only, but in a metal factory there are loose metal particles around that can cause trouble, so now have support classic barcodes, too.

 

Is the In-Plant Store a readymade service? Can you apply it any industry?

I see no real limitations. Even in a really large enterprise, it takes about 3 months to set up an In-Plant Store, plus the lead time for storage hardware.

You just need a trustworthy Internet connection and electricity supply, and room for the actual storage. We prefer to use a LAN connection for the In-Plant Store but we can go wireless if the wires are difficult to install.

One thing to keep in mind is that Erply’s cloud services will run in the backend. This does not mean the customers has to get rid of its old ERP or warehouse software. Erply can run in parallel, and integrates well with older software. So, no need to change from them ERP software you are already used to, unless you want to take full advantage from a modern integrated software package. Erply’s ERP is cloud based, so the management can see the progress in real time from any point of the planet.

 

Are there any hidden costs in an In-Plant Store?

It’s the client who decides if they want full service from us, or they use their own personnel for administration. With full support, they sure don’t need to employ new personnel. Rarely are extra people needed anyway. My experience is that there are immediately visible costs cuts, if In-Plant Store is set up. Even without an In-Plan Store, Vendor-Managed Inventory frees financial resources from stock and practically eliminates overstocking risks, so the benefits are instantaneous.

 

Does the Vendor-Managed Inventory change business processes? Many entrepreneurs try to avoid major changes, if the system works as it is.

As I said, we can even keep the old ERP software running, so there is no need for rushed decisions and total overhaul. The warehouse software can originate from decades ago, but we still get it nicely integrated, if the client wants to keep using it. Integration with NAV, AX, SAP and other accounting software is essential for Erply.

With Vendor-Managed Inventory, the order fulfillment can, but does not have to be automated. We have clients who are used to see the stock replenishment reports in email, and formulate orders according to there. And we have clients who have automated everything, so they just check the bills over a certain period.

So I am right that Erply provides an electronic warehouse keeper?

Well, Erply is the backbone of the inventory software solutions. Even if you would have Einstein as your warehouse keeper, I think the software still is much more capable. Inventory management is all about optimal resource allocation.

Large factories can easily have thousands of diverse items in hundreds of storage cabinets, so without capable hardware it would be a real mess. Now with VMI, there are minimal and maximal stock levels matched, orders that provide optimal transportation, stock flow tailored for large project…

What I especially value in enterprise management software and particularly in inventory applications, is the real time reporting that the headquarters get. Until recently, most of the supply and stock knowledge belonged to salespeople and warehouse personnel. Now the management level people also have it, which gives huge possibilities for perfecting the business processes.

 

Vendor-Managed Inventory is a highly useful business software service that really makes B2B partnerships more profitable for both parties. No sales opportunities lost, and no delays in manufacturing process. The future is here, and the ones who get the new technology first, are on the winning side.


About the author
Kristjan Hiiemaa
Entrepreneur building better POS and cloud-based retail management suite . Product guy. CEO & Founder of Erply.