Marketing and Supply Chain Management
John F. Kros*, Ph.D. and S. Scott Nadler**, Ph.D.
Although VMI and industrial vending machines have been around for years, widespread adoption into the marketplace has taken off as of late. A survey of supply chain managers was conducted to provide a detailed picture of the current state of vendor managed inventory (VMI) policies associated with industrial vending machines. The research provides details for gaining a better understanding of the possible increased efficiency and cost saving opportunities offered by VMI and industrial vending machines. Empirical analysis of the survey data reveals details regarding adoption and usage, key market trends, systems requirements, expenditures, and more.
User Groups and Solution Providers
This study empirically examines the differences across user groups (i.e., users and non-users). Preliminary discussions with vending solutions providers (Fastenal, Cribmaster, MSC, APEX, Carefusion, and Omnicell) indicate that industrial vending is broken down by the two major classes: medical vending and non-medical vending. The type of product dispensed was the driver in why these two classes were separated. Specifically, the medical vending class is tasked with dispensing controlled substances such as narcotics whereas the non-medical class is not required to dispense controlled substances. These two classes are also examined to reveal differences in, but not limited to, usage, vended products, trends in machine adoption, etc.
Preliminary results show that about 53% identified their organizations as users of industrial vending solutions. Non-users cited lack of application, lack of knowledge, and cost as reasons why their organization did not utilize employee vending solutions. Overall seven different solutions providers were listed. These providers split exactly along medical and non-medical user classes. Non-medical respondents cited four to five major solution providers while medical users cited three major solution providers. Fastenal was cited as the most used provider by non-medical users (48.5%) followed by Cribmaster (24%) with the vendors Autocrib/Robocrib and MSC also being mentioned. For medical users, Carefusion (68%) was the most cited with Omnicell (26%) following in second. Aucdose/McKesson were also cited, but mainly a solution for pharmaceutical dispensing.
Respondents noted a wide range of vended items with consumables (e.g., gloves, Loctite, zip ties, etc.) being the top category followed closely by narcotics/controlled substances and pharmaceuticals (almost solely within the medical class), cutting tools, and safety equipment.
Study Demographics Major Study Findings
The survey was sent to professionals that were members of the Council of Supply Chain Management Professionals (CSCMP), the Institute of Supply Management (ISM), and the Association for Operations Management (APICS). Overall, recipients returned 439 questionnaires, 287 from the non-medical class and 152 from the medical class.
1) Forty-six percent of respondents worked in organizations that had annual procurement spend of approximately $10 million to $100 million, while 36% worked in larger organizations with annual procurement spend greater than $100 million and 18% worked for organizations with less than $10 million in annual procurement spend.
2) A large majority (65%) of respondents noted that vending solutions have been part of their workplace for more than 2 years while approximately 20% stated vending solutions have been in their workplace for at least 1-2 years. One finding of particular note was that 89% of medical participants reported using vending solutions for more than 2 years compared with 35% for non-medical participants.
3) With regard to the number of vending machines at their locations, 65% of respondents reported 6 or more machines while 35% reported 5 or less. When broken down by class, 58% of non-medical respondents noted 6 or more machines while 89% of medical respondents reported 6 or more machines.
4) Respondents also revealed what the optimal number of vending machines at their location should be with 72% commenting 6 or more machines were optimal. Analyzing by class, medical respondents overwhelmingly (91%) thought 6 or more machines were optimal while 64% of non-medical respondents thought 6 or more machines were optimal.
5) The vast majority (74%) of vending users stated that the implementation of the solution became economically beneficial to their organization within 1 year or less. In addition, more than 90% of users stated the solution became economically beneficial within 2 years or less. While both non-medical and medical classes confirmed this overall, non-medical users (85%) reported they were more likely to see benefits within 1 year or less than the medical user (65%).
This study reveals a number of important managerial implications regarding information quality and flows, supplier relations, and solution success measured by such metrics as cost, service, and inventory. Questions focusing on these areas were asked and responses were recorded using a seven-point scale with 1 = strongly disagree and 7 = strongly agree. Higher responses were considered more favorable on all questions.
1) Improved information quality and flow are commonly promoted as benefits to vending solutions. The survey measured information quality and flow by using a set of eight questions (e.g., the information that the solution provides is reliable, the solution offers actual data usage in a timely manner). Overall, users responded very positively (average response of 5.97 out of 7) in the area of information quality and flow indicating that the vending solutions were providing value-added.
This result was expected not only in that the solution providers advertise improved information quality and flow but one key feature to almost all the vending systems was real time data acquisition. Nonmedical users responded slightly higher than medical users but both groups were very positive (e.g., 6.02 vs. 5.87 respectively).
2) Successful supplier relationships are repeatedly cited as being crucial to success and mutual benefit. Relations between suppliers and users were measured using a set of four questions (e.g., this supplier will live up to all deals and agreement, this supplier will lend support when it comes to important needs and requirements). Vending solution users were positive (average response of 5.6 out of 7) in their attitudes towards their solution provider.
Again, this result was expected as providers worked closely with users on the development, implementation, and maintenance of the vending solutions. In addition, almost all vending systems included some type of ongoing vendor managed inventory program. It was interesting that non-medical users responded higher than medical users (e.g., 5.78 vs. 5.41 respectively). A possible explanation for this difference might lie in the more limited number of providers in the medical market (3 major providers versus 5 to 6 in the non-medical market).
3) There are many measurements that gage success of vendor-buyer relationships. Most would agree when describing metrics that would characterize success for industrial vending applications that cost, service, and inventory all should be included. This research uses all three metrics, measured individually, to illustrate the success of the industrial vending relationship. Each metric had a set of four questions, which measured cost, service, and inventory. Questions such as the following were used: did the system reduce total inventory costs or has the system contributed to providing higher levels of customer service or has the system improved inventory accuracy.
Overall, respondents agreed that the vending solutions all provided cost, service, and inventory benefits. This agreement is illustrated in the average responses on all three metrics (e.g., 5.65 for cost, 5.55 for service, and 5.70 for inventory). The data revealed only small differences between non-medical and medical users verifying that industrial vending solutions do provide benefits across many disciplines including medical venues.
It must be noted that this result is somewhat expected. Logically it is likely users did some self investigation about benefits that led them to seek a solution (i.e., self selection). On the other hand, it must be noted that the vast majority of systems have been in place for more than 2 years and as previously noted “payback” timeframe was less than 1 year. When these two areas are juxtaposed with the cost, service, and inventory responses there appears to be real value in the vending solutions apart from self-selection.
This research supports the premise that industrial vending solutions provide increased efficiency and cost saving opportunities that have been asserted in the past. This research substantiates the more or less anecdotal evidence within the industrial vending field by providing a third party study of multiple business organizations. Additionally, this research juxtaposes two important sectors, non-medical and medical, with regard to industrial vending use, benefits, and success. Responses confirm that the medical field is a large player in the vending marketplace and feel strongly that industrial vending solutions provide value to their organizations but do have unique needs. Overall, this research illustrates that industrial vending investments provide timely payback, increase quality and flow of information between vendor and user, and provide concrete value with regards to improvements in cost, service, and inventory management.
*College of Business, East Carolina University
** College of Business, University of Central Arkansas
Copyright 2013 John Francis Kros, Ph.D.