ABSTRACT
The marketing function has gone through a number of transitions over the years in a search for more efficient as well as more effective operating models. One of the key drivers of change has been the need to create a more efficient match between supply and demand, since many potential sales are lost due to the lack of the right inventory at the right time and place. To this end, many business-to-business companies in the past decade have moved toward the practice of “automatic replenishment” or “vendor-managed inventory,” in which manufacturers take on the responsibility for managing inventory at the retail level. Monitoring starting inventory levels and sell-through volumes, manufacturers automatically ship additional merchandize when stock is depleted. The advantages of this approach are several: out-of-stock situations are greatly reduced, and many administrative costs associated with ordering, invoicing, and billing are reduced or eliminated. Implemented effectively, this approach results in higher levels of product availability at the point of purchase, with much lower average levels of inventory. The track record has been very strong; 80 percent of retailers now use some form of automatic replenishment, and companies have reported an up to 400 percent increase in inventory turns and 75 percent reduction in out-of-stock situations.
