VMI: The Game Changer

Vendor managed inventories (VMI), or ” pay by scan” as we more commonly know it, has changed the way growers do business – both large and small – resulting in both success and failures. In trying to determine why some fared better than others, I spent a lot of time in retail gardens centers and talked to a number of growers who are heavily involved in VMI.

The major elements that affect the management were discovered to be the following:

• A positive mindset that looks at VMI as an opportunity
• Analyzing the sell-through data to drive inventory decisions
• Controlling discards
• Product quality – just a “ticket to play”
• Distribution
• Merchandising
• Innovation

Positive Mindset

When pay by scan was first introduced, many were fearful of their potential to be profitable under the system. Pay by scan caused a lot of dissent and negative conversations throughout the industry. There were the few who adopted the mindset of “the customer is in charge and we have two choices – find another customer or figure out how to make this work for our business and the customer.“ This group immediately started planning and analyzing what it would take to be successful, and they are now realizing the fruits of their efforts.

Analysis

Knowing the numbers is more important than ever regardless of what system a grower is working under. The national retailers all supply their vendors with access to retail data and those who employ analysts to interpret that data have a clear competitive advantage. As these retailers move to an enhanced SKU management system that will provide genera and variety detail, analysis will be even more powerful in allocating inventories of SKUs by store.

Controlling Discards

One of the most challenging elements of VMI is the vendor is accountable for products that are not sold. No longer can a vendor put together store orders by guessing or looking only at historical data. Discards will be controlled by analyzing the data by stores and by SKU at each store. I recently heard of a grower who has developed software that does this analysis and spits out store orders based on a number of indices, including weather patterns.

Product Quality

As with anything, product quality is in the eye of the beholder and the beholder for this industry is the consumer. Research has shown two of the key elements for consumer-buying decisions are plant look and plant size. Although plant quality is important, it is merely a “ticket to play” and is an integral part for managing VMI successfully and profitably. In all my travels, it is evident high-performing vendors stock the shelves with high-quality goods. What looks great in a greenhouse does not always looks great at retail.

Distribution

Distribution is one of the highest cost processes driven by rising fuel prices, more frequent deliveries, larger product sizes and the growing need for distribution carts. As we move toward more category management, contract growers are cross-docking with primary vendors, which leads to increased distribution costs. Some growers are now managing all green goods categories. That has driven up their sales revenue but at the same time increased the complexity of managing their business. Distribution will undergo more changes in the next five years with more creative solutions, and more growers will work together to control these escalating costs.

Merchandising

VMI essentially made the grower a retailer and created a whole new learning curve that enables the grower to understand how the retail environment really works. One of the most positive aspects of VMI is the grower must now know more about consumers and their buying motivation than ever before. Those who took merchandising seriously and created a well-managed operating group fared the best, while those who did not recognize the impact of poor merchandising were seriously challenged and suffered some severe performance issues. They have moved on to other customers.

Innovation

While assuming accountability for discards, there has been a decline in innovative new products and product forms because of the fear of controlling discards. Lack of innovation has led to a decline in gross margins, while at the same time opening up the innovation to breeders and other brand owners who now control many of the new product introductions.
At Home Depot, most of the new products are coming from the Viva brand and Proven Winners. The vendors are now obligated to offer these programs because of a lack of innovation from the vendor base.

Summary

VMI has clearly changed how the grower goes to market while providing many opportunities, with the most significant being the ability to mange garden centers and get closer to the consumer. It has changed the buying habits of many and has made the importance of satisfying consumers a more important priority. No longer do growers just adopt new varieties because they personally like something. The decision is now more driven by consumer performance, not just production issues.

Breeders can no longer introduce varieties based on the old adage of “early, compact and basal branching.” Now, growers think about sell-through, sales velocity and discards. VMI has been one of the major contributors to the reductions of input costs, while at the same time putting more emphasis on consumer satisfaction.

VMI has also created an expanded segment of “contract growers” that is currently growing at an unprecedented pace and is creating a lot of opportunities for small and midsize wholesale growers. VMI has created higher levels of accountability, the opportunity for the industry to get connected to the consumer and drops the production-only mentality. We are now in an era of “retailer in charge,” moving quickly to an era of “consumer in charge.”

Leave a Reply

More From Finance/Operations...
Double Whammy Merchandise Display At CAST2015

May 28, 2015

Grow Inspiration To Grow The Horticulture Industry

We need to work together as the horticulture industry to inspire and instruct consumers with our plant knowledge and marketing expertise.

Read More
Plant-Select_for-web

May 28, 2015

PlantSelect.org And FindPlants.net Assist Consumers With Growing And Finding Plants

The recently launched PlantSelect.org and FindPlants.net websites offer growing and maintenance tips, where-to-buy information and design ideas to help consumers have success with growing and finding plants.

Read More
Cal-Poly fields

May 27, 2015

Cal-Poly Students And Faculty Ask Industry To Help Save Horticulture Facilities

California Polytechnic State University, San Luis Obispo, has released an update to its Master Plan that indicates that almost all of its orchards, horticulture facilities and field sites could be repurposed for buildings, including residential, and/or recreational space. According to a letter from Scott Steinmaus, the horticulture and crop science department head, the proposed changes directly affect the current orchard plantings and other long term plans for the department. The department is committed to making sure that its facilities remain invaluable teaching environments that enable its students to learn about crop, fruit and horticulture production, food safety and pest protection, in addition to providing sites for externally funded research projects that benefit the industry. Industry members are invited to submit comments to the university. According to Steinmaus, a recent eMail to the Cal-Poly community from the university president indicates that all of the input gathered through the end of May will be studied by the planning […]

Read More
Latest Stories
Cal-Poly fields

May 27, 2015

Cal-Poly Students And Faculty Ask Industry To Help Save…

California Polytechnic State University, San Luis Obispo, has released an update to its Master Plan that indicates that almost all of its orchards, horticulture facilities and field sites could be repurposed for buildings, including residential, and/or recreational space. According to a letter from Scott Steinmaus, the horticulture and crop science department head, the proposed changes directly affect the current orchard plantings and other long term plans for the department. The department is committed to making sure that its facilities remain invaluable teaching environments that enable its students to learn about crop, fruit and horticulture production, food safety and pest protection, in addition to providing sites for externally funded research projects that benefit the industry. Industry members are invited to submit comments to the university. According to Steinmaus, a recent eMail to the Cal-Poly community from the university president indicates that all of the input gathered through the end of May will be studied by the planning […]

Read More
people-of-Battlefield

May 13, 2015

Battlefield Farms Receives MPS-A Qualification

Battlefield Farms, Inc., in Rapidan, Va., has been awarded the MPS-A qualification after becoming a participant for MPS-ABC in 2010. After four years of showing effort and improvement, the company has been awarded the qualification.

Read More
Barry_Sturdivant_columnpic

May 8, 2015

How To Survive Succession Planning And Resolve Conflic…

If you work in agriculture, you most likely work with family-owned businesses. This is especially true within the greenhouse industry. I’m fortunate to work for a company that specializes in financing and supporting such businesses. Family-owned businesses often have a level of commitment and support that helps during lean times. This is important for a company exposed to seasonality and events that are sometimes beyond management’s control. Business owners and management are constantly looking for solutions to the unique issues faced by these small but complex businesses. Specifically, how these issues affect the transition from one generation to the next. There are many family enterprise success stories, cases of harmony, health and longevity. Yet it’s no secret that family businesses can struggle with governance, leadership transitions and even survival. According to the Family Business Institute, only 30 percent of family businesses last into the second generation, 12 percent remain viable […]

Read More

April 30, 2015

North Creek Nurseries Welcomes Nikki Drake As New Finan…

Nikki Drake will fill the role of new financial administrator at North Creek Nurseries, with responsibility for the accounting department. She will also serve on the strategic planning committee.

Read More
Andy Huntington Pleasant View

April 29, 2015

Pleasant View Gardens Promotes Andy Huntington to Natio…

Pleasant View Gardens recently announced that Andy Huntington will be the company’s National Sales Manager. Huntington, who has years of horticulture industry experience, will oversee national territory and inside sales departments, while fostering strong partnerships with customers. “Our relationships with customers are central to all that we do at Pleasant View,” Huntington says. “In my new role, I am excited to work with a broader base of broker, grower and retail partners to understand their business needs. Pleasant View’s goal is to be so in tune with our customers that we are able to anticipate their problems before they arise.” Huntington has a history of growing sales and forming long-lasting relationships with a diverse customer base. For the past two years, he has been working as a territory account manager for Pleasant View Gardens, responsible for young plant liner sales in New England and New York. Prior to that, Huntington was […]

Read More
PittMoss on Shark Tank

April 22, 2015

PittMoss Wins On Shark Tank

Mont Handley, president and CEO of PittMoss, appeared on ABC’s Shark Tank on April 17 to try to get the “sharks” to invest in his peat moss alternative. Three investors from the TV show contributed $600,000 to PittMoss for a 35 percent stake in the company. Check out this clip from ABC’s website in which Mark Cuban, Kevin O’Leary and Robert Herjavec discuss getting on board with the product. PittMoss is an alternative to sphagnum peat moss, made up of a mix of proprietary additives and recycled paper rescued from landfill space. Handley founded the Pittsburgh-based company in 1994. What started as a small experiment grew into a full-fledged business with the help of funding provided by an EPA SBIR grant and Pittsburgh’s Idea Foundry. Today, PittMoss is available to commercial greenhouses and nurseries from Michigan to Maine to North Carolina, with plans to grow. To learn more, visit PittMoss’ website, or check it […]

Read More
Syngenta logo

April 15, 2015

Syngenta Names Chris Freeman Senior Key Account Manager…

Chris Freeman is the new senior key account manager for Syngenta Flowers, Home & Garden's Commercial Sales business in the Americas, effective March 2015. Freeman, who joined Syngenta in 2006, carries more than 25 years of experience in the agriculture and floriculture business.

Read More
Lake Buchanan_LCRA

April 10, 2015

USDA Designates Areas Of West And Southwest As Drought …

The ongoing drought has resulted in disaster area designations in counties across nine Western and Southwestern states, including Texas, where some reservoirs are at or near historically low levels.

Read More

April 9, 2015

Altman Plants’ Online Cactus Shop Shows Strong Sa…

Altman Plants recently opened its new Cactus Shop, an online retail store that sells a variety of cactus and succulents. The store is a take-off of Altman’s original wholesale business, as the company started as a mail order catalog.

Read More
Dummen

April 8, 2015

Dümmen Group Welcomes Jim Devereux And Andrew Konicki T…

Dümmen group recently announced the addition of Jim Devereux and Andrew Konicki to its team. They are the newest members of the Key Account and Broker Support team for Dümmen, and will be responsible for building, developing and maintaining current broker and grower customer relationships.

Read More
Gov._Jerry_Brown_California

April 8, 2015

California Institutes First Ever Statewide Mandatory Wa…

California Gov. Jerry Brown announced April 1 that, for the first time in state history, action will be taken to implement mandatory water restrictions, with the ultimate goal of reducing water usage by 25 percent. As Californians are pushed to conserve more, growers will need to think about how demand for products will be affected.

Read More
DNA-logo

March 31, 2015

DNA Green Group Will Acquire Rijnplant

DNA Green Group and Riknplant have finalized DNA Green Group's acquisition of Rijnplant, meaning that the breeding and propagation activities in pot and cut anthurium, bougainvillea and heliconia will transfer to DNA Green Group.

Read More
AFE scholarship_Ryan Dickson

March 25, 2015

AFE Educational Grant And Scholarship Application Deadl…

Apply now for American Floral Endowment (AFE) scholarships or educational grants. Applications can be found online. For educational grants for 2015-2016, applications must be submitted no later than June 1. Scholarship applications are due May 1. AFE will award $40,000 in scholarships for 2015.

Read More

March 23, 2015

UF/IFAS Appoints Joseph Albano As Director Of Mid-Flori…

The University of Florida's Institute of Food and Agricultural Sciences (UF/IFAS) has a new directors for its Mid-Florida Research and Education Center (REC) on Apopka, Fla. The role has been filled by Joseph Albano, a research horticulturist from the U.S. Department of Agriculture with more than 25 years of experience.

Read More

March 17, 2015

Pike Nurseries Implements Employee Stock Ownership Plan

Independent garden retailer Pike Nurseries has announced it will become an employee-owned company. Pike Nurseries management has combined with its sister corporation in California, Armstrong Garden Centers, to operate under an established Employee Stock Ownership Plan (ESOP).

Read More
GrowIt! App Wins Gold At Design100 2014 US Mobile & App Design Awards

March 10, 2015

GrowIt! Mobile App Now Available For Android

The mobile app GrowIt! Garden Socially can now be used by gardeners with Android-based smartphones. Now available on the Google Play Market, GrowIt! helps users find plants to fit their lifestyle and connect them with other local gardeners.

Read More

March 4, 2015

Second Annual GreenhouseConnect Will Bring Growers and …

Following a successful inaugural event in Tampa last fall, Greenhouse Grower has announced the dates of its second annual GreenhouseConnect: October 26-29, 2015. Representatives of an expected two dozen leading greenhouse operations from across the U.S. will join senior-level suppliers at Rancho Bernardo Inn in San Diego for several days of one-on-one strategic meetings, a growers-only roundtable, informational sessions and a variety of networking events.

Read More

March 4, 2015

Maryland Green Industry Associations Unite

The Maryland Nursery and Landscape Association recently announced that it is expanding its reach to include the greenhouse industry, meaning it has become The Maryland Nursery, Landscape and Greenhouse Association (MNLGA). The change comes as a result of the planned dissolution of the former Maryland Greenhouse Growers Association and the invitation for those members to join the existing and renamed association.

Read More