Millers and bakers can benefit from Internet-based inventory management

by Emily Wilson
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Managing inventory has always been important for flour millers, but as Internet capabilities emerged in the late 1990s, so did new ideas about how to manage inventory.

The first tangible products for bulk flour Vendor-Managed Inventory (VMI) were introduced at last year’s Association of Operative Millers’ technical conference. One company, Integrated Solutions Group, Inc., St. Louis Park, Minnesota, U.S., unveiled its vendor managed inventory system, called Datafluence VMI.

A VMI system measures the quantity of product in customers’ bins and tanks, collects other information such as forecasted usage and sends the information back to the supplier. This enables suppliers to know exactly when and how much product to send to a customer. It ensures that customers never run out of product and that suppliers always have enough room in a bin to unload an entire delivery.

Although this technology was introduced more than a year ago, millers are only now beginning to seriously consider a VMI system.

"Millers are running out of cost-effective ways to improve the efficiency of their mills," said Bill Frogner, president of Integrated Solutions Group. "So now they are going beyond the mill and trying to squeeze costs out of their supply chain."

At the 2000 AOM conference, Frogner said the interest among the millers was definitely there. "We did many demonstrations and showed lots of people how to use the system," he said. "But the industry wasn’t ready yet for this kind of system. People wanted to learn about it, but they weren’t ready to commit to it."

Millers are hesitant of this new application of using the Internet as a method of inventory control, but many are very interested in possibilities of using this type of system to tie in to their bakery customers’ flour needs, Frogner said.

The reason for the slow acceptance of VMI, Frogner believes, is that mills interested in setting up a VMI system could not show enough benefit for their customers.

"Bakeries are reluctant to commit to long-term contracts with suppliers unless the suppliers can show them enough added value," he said. "Without VMI, flour mills must compete primarily on price alone."

A well-designed VMI solution should be built on a flexible architecture that works well for both sides, Frogner said. For example, Datafluence VMI can be configured to allow either the mill or the bakery to control the flow of information. The level of ownership of information will usually be directly related to how the cost of the system is distributed.

The sales and marketing division of a mill will recognize that VMI builds loyalty among customers, provides incentives for long-term contracts, displays a mill’s progressive thinking and improves customer service and support, Frogner said. A VMI system provides different benefits to a mill production staff, such as proactive managing of customers’ needs, efficient planning of facility production and the ability to leverage storage capacity at a customer’s site. With VMI, millers know ahead of time how much flour a customer needs and mill runs can be appropriately planned in advance.

Bakers can save money by keeping smaller amounts of product in inventory, knowing that supplies are guaranteed to come on time, or buying on consignment. In addition, they don’t have to worry about measuring product levels.

"VMI only works if there is enough value on both sides, for supplier and customer," Frogner said. "It has to be a collaborative and balanced relationship between the two sides. Millers have expressed a significant interest in this system. And we’ve been told that bakeries need and want this type of system."

It is only a matter of time, Frogner believes, until bakeries begin demanding VMI services from millers, just as bulk customers in other industries are now doing.

Bakeries will want:

•a constant supply of product that never runs out,

•reduced costs of managing inventory, and

•products on consignment so they don’t have to pay for them until they use them.

"Each flour miller will be under increased pressure to meet these demands before their competitors do," he added.

Bakers will likely approach millers with solutions that work for them, and millers need to already have solutions that will be suitable for their facilities.

"Millers will find themselves at a competitive advantage if they are helping to drive these changes rather than just reacting to customer demands," Frogner said. "The industry has been thinking about this for awhile and it’s finally starting to move. Now it’s a matter of asking what are the solutions, and figuring out the best one for your facility."

Above all, Frogner emphasizes, "The VMI solution must work for both sides, or it isn’t going to work at all."