The benefit
Why automatic replenishment makes sense
The benefits for an automatic replenishment system come in
four forms:
- Operational
- Balance Sheet
- Revenues
- Intangibles
They also split between both the buyer and supplier. A successful
program makes a supplier more competitive while also increasing the
success of the customer, resulting in long term supply relationships and wins for both parties.
The full list of benefits, along with the values observed in experiences from implementers is included in Table #3. These expectations have wide ranges, which depend on the characteristics of the relationship.
Typical paybacks on implementation are 6 to 24 months, with IRRs of 50+%
| Operational Benefits | Typical Value Expected | Supplier or Buyer Benefit |
|---|---|---|
| Eliminate emergency shipments and all associated costs | From current level to zero | Both – depending on who incurs current costs |
| Eliminate emergency production runs and all associated costs | From current level to zero | Supplier |
| Reduced customer service organization headcount | 10-75% | Supplier |
| Reduced purchasing resources | 10-75% | Both, depending on direction of deployment |
| Balance Sheet Benefits | Typical Value Expected | Supplier or Buyer Benefit |
|---|---|---|
| Reduce average inventory at the customer tanks | 30-60% reductions, depending on volatility in ordering | Buyer traditionally, Supplier under consignment |
| Reduce average inventory at upstream raw materials tanks | 20-60% reduction, depending on the volatility | Supplier traditionally, unless buying under consignment |
| Future tanks can be smaller for both raw materials and at customer sites | 5-15% reduction in tank PPE over 10 years | Both: Tank Owner |
| Revenues | Typical Value Expected | Supplier or Buyer Benefit |
|---|---|---|
| Saleable service to the customer | $0-50/mth; or exchange for shorter payment schedules | Supplier |
| Increased customer retention | .5-1% average less annual churn | Supplier |
| Increased or sustained pricing in core products | .5-1% average improvement in annual pricing | Supplier |
| More sole source deals | Value of the contract | Supplier |
| Intangibles | Typical Value Expected | Supplier or Buyer Benefit |
|---|---|---|
| Better utilization of sales force hours | No time spent managing customer inventory | Supplier |
| Integrated link with customer | Many benefits | Both |
| Visibility into competitive fills | Sales enforced into sole sourced contract | Supplier |
