Vendor Managed Inventory: Why Downstream CIOs Need to Invest in 2016

Keep product moving. Keep haulers moving. Keep inventory low.

These are the three profit-driven principles of downstream oil and gas companies. As long as those three are right, the firm is on-track for delivering good customer service and managing costs. The problem is that it rarely works that way: customers inaccurately forecast demand, haulers experience issues when heading to a delivery site, every customer needs product at the same time. A vendor-managed inventory powered by mobile solutions is the key to meeting customers’ needs without compromising profits.

A vendor-managed inventory is a pull-based system where vendors have ownership of maintaining customers’ inventory levels, as opposed to a push-based system where customers indicate when their levels are low. When paired with real-time data on a mobile solution and an automated ordering process, vendors gain control of their scheduling, delivery and inventory processes— allowing them to be more efficient. Customers receive better service and optimize their inventory and delivery levels.

How a digital vendor managed inventory works

First, let’s review the current situation. The customer forecasts their demand for the product. Based on this estimation, which can be inaccurate, the customer places an order. The firm receives the order and a team of full-time scheduling personnel schedule delivery. The driver receives the order information when checking in at the site at the beginning of his or her shift. He or she drives out, but can potentially hit road closures, accidents, inclement weather that may delay the order delivery and require the scheduling team to scramble. Based on the customers’ forecasts, which may have varied from their actual needs, the inventory at the end of the day may be higher than optimal, a sign of waste.

Here’s where mobile solutions for a vendor-managed inventory come in:

Mobilized SCADA data of customers’ inventory levels to ‘pull’ for customer orders. Instead of waiting on the customer to indicate a low inventory, the warehouse is able to pull all of that data into a mobile app and use that to power their scheduling and pricing processes. For upper-level executives, this visibility into customer demand can provide fine-tuned forecasts. Vendor managed inventories yield excellent data into your internal operational efficiency and processes.

GPS routing and visibility into delivery progress. As drivers go out for a delivery, quite a bit can cause delays-- affecting customer service, and ultimately retention. Drivers can instead rely on a GPS routing application, which integrates with the vendor managed inventory digital product, to help them avoid areas of heavy traffic or accidents. Merging a mobile app with weather forecasts will also increase safety for drivers by avoiding highways or areas likely to flood during severe thunderstorms. For central command, understanding where drivers are at all times can help them track their progress toward on-time deliveries. If a situation does arise and a delivery is delayed, the scheduler can work with the driver for alternate options and check in with the customer.

Managing scheduling issues. Nearly every customer will want their delivery at the same time. Instead of overbooking the busy shifts and leaving trucks and drivers idle during non-peak times, using the mobilized data of customer inventory levels to power a scheduling process that also pulls in driver shift and truck availability will increase efficiency of the entire process and cut down on the hard costs related to scheduling.

Lower inventory levels. When implemented correctly, a digital vendor managed inventory provides a real-time picture, rather than a forecast, of how much inventory will be used each day (by coordinating with the data of customers’ needs) and allows for a tighter communications loop between supply and demand. 

More engagement with customers. The vendor who takes an active role in customers’ business models and powers communication with an intuitive mobile app, to put it simply, wins. Customers today are looking for convenient solutions to pressing problems, especially delivering the ROI of a vendor-managed inventory that empowers the customer to keep inventory levels at the precise right amount. Digitizing that system so it becomes completely painless for the customer is how market leaders are born. Oil and gas firms have woken up to how powerful mobile technology can be for companies, and their gas station and other customers have as well.

Here’s a New Year’s resolution for downstream oil and gas CIOs: unlock the value of digital products in 2016. Early adopters of digital products in this industry have already realized the value from products like a digital vendor managed inventory. It’s time for the rest of the industry to join them.

According to a recent study, digital transformation will drive CIO efforts in 2016. Yet, the same report predicts that by 2018, 70 percent of these efforts will fail. Why? Insufficient sourcing, collaboration, integration and project management are identified as the main culprits. Gartner predicts that 25 percent of businesses will lose competitive ranking due to a lack of digital business competence.

It’s clear that CIOs have a long road to travel to get to a mature digital business state. In an industry with distributed operations, complex scheduling and hefty regulations, companies who are not using resources to lay out the map for that road in 2016 leave themselves vulnerable to digitally enabled competitors in the years to come.

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