Creating a Successful VMS (Vertical Marketing System)

Assuming that potential benefits appear worth while, what specific actions and agreements are necessary to establish and maintain a successful VMS? At least six concerns are critical: (1) channel wide perspective, (2) selective matching, (3) information sharing, (4) role specification, (5) ground rules, and (6) exit provisions.

Channel wide Perspective: To perform effectively in a VMS arrangement the leader and all involved parties should view their participation in terms of the overall trading channel. The key vision is to understand the overall purpose of the VMS as contrasted to specific assignments or roles. This is not to suggest that each member can neglect the basics or detail of its specific assignments. Rather, individual assignments should be viewed in terms of their overall contribution to the entire VMS structure. Retaining a perspective of the ‘big picture’ protects against becoming role-myopic with complex distribution arrangements, participants must understand that the tangible benefits that result from a specific task may impact a different level in the marketing channel. VMS arrangements in which reverse channel movement of products is coordinated normally offer retailers a significant value added service. From a manufacturer’s viewpoint, such reverse operations are costly and difficult to manage. Radical changes in traditional practice that enables significant productivity improvements are best initiated throughout the total channel. More often than managers would like to admit, the idea to improve a process from an individual who didn’t know it could be done a different way. Understanding the total process offers a safeguard against continuing to do something well that shouldn’t well that shouldn’t be done.

Selective Matching: Not all channel situations justify or are capable of supporting the extensive commitment necessary to make a VMS work. From a marketer’s perspective, an ideal VMS is one that generates unique service focused on key customers or niche markets. Thus, focused services should be concentrated on the strong links of any distribution system. In order to justify using customized services to gain competitive superiority effort must be concentrated on high yield opportunities and coordinated with overall strategic planning.

For example, Wal-Mart’s formula for establishing alliances with key suppliers is guided by the volume of potential business at stake and the participating vendor’s sophisticated information technology. Unless the supplier is capable of direct electronic linkage via the Wal-Mart satellite communication network, it is not practical or economical to share the assortment of information required to function as a VMS. The players in a VMS must be economically and managerially strong. A VMS is typically a long term arrangement in which ups and downs characteristic of most business situation are expected to be confronted. To support VMS, all parties must have staying power. Thus, equally important to significant high side volume that causes a VMS arrangement to flourish is the capability of involved parties to cope with the realties of downside business.

Information Sharing: Information sharing is the ‘glue’ that holds a VMS together. Information sharing needs range from planning strategies to operating details. Joint performance requires open disclosure of information. Complete information exchange is essential so that the synchronization of VMS member operations can be ensured. Some services providers involved in VMS arrangements are establishing a full disclosure information system capability. Systems are supported that provide real time tracking of shipments at case level or stock-keeping unit detail throughout the logistics process. In selected situations, such one in which Skyway Freight Systems, Inc., is involved, VMS participants can track in-transit status of shipments in terms of projected arrival time. Projections of estimated time of arrival provide the information for the evaluation of the cost-benefit of expediting a shipment to meet a desired delivery. Such positive control is a key feature of the American Presidential Lines/ Union Pacific Railroad double stack container service that links Pacific Rim manufacturers directly to retailers in North America. The service provides containerized delivery on hangers of garments that are size and color sequenced to retailers; specification prior tot their being loaded in Asia.