Northern Foods is in talks with Sainsbury's about managing its own inventory with the retailer – and unlike similar past deals Sainsbury's would only pay for what it sells.
Marking a possible return to prominence for vendor-managed inventory (VMI), Northern, which makes Fox’s biscuits and a large range of own-label products, is understood to be seeking a closer trading arrangement with Sainsbury's, its third-biggest own-label customer.
If the deal is agreed, its buying team would effectively become responsible for Sainsbury's ordering of Northern’s products, as well as demand forecasting, which it believes it is better equipped to do. Sainsbury's would pay for only the products that it actually sells, reducing its wastage significantly.
VMI is relatively rare in the UK, having fallen out of favour in the past few years. Payment on the basis of volume sold is particularly unusual in food, though it is fairly common for white goods and other high-value products.
“The deal has the potential to be beneficial to both parties,” said a source close to the talks. “Northern believes it can grow its sales through its knowledge of its own products, which often buck trends in their categories – its ready meals business is growing despite a declining market. The benefit to Sainsbury's would be the reduction of risk and wastage.”
Supply chain expert Aidan Bocci, MD of Commercial Advantage, agreed the deal could benefit both parties, but warned of potential complications.
“The benefit to the supplier in these vendor management deals is that they get much greater visibility of their demand, and a more responsive supply chain,” he said. “But the details are crucial. Issues such as wastage and payment terms can add a lot of complexity. Ultimately if the supplier can cut payment times and the retailer benefits by not paying until after consumer purchase, there’s a potential opportunity for both parties.”
Marking a possible return to prominence for vendor-managed inventory (VMI), Northern, which makes Fox’s biscuits and a large range of own-label products, is understood to be seeking a closer trading arrangement with Sainsbury's, its third-biggest own-label customer.
If the deal is agreed, its buying team would effectively become responsible for Sainsbury's ordering of Northern’s products, as well as demand forecasting, which it believes it is better equipped to do. Sainsbury's would pay for only the products that it actually sells, reducing its wastage significantly.
VMI is relatively rare in the UK, having fallen out of favour in the past few years. Payment on the basis of volume sold is particularly unusual in food, though it is fairly common for white goods and other high-value products.
“The deal has the potential to be beneficial to both parties,” said a source close to the talks. “Northern believes it can grow its sales through its knowledge of its own products, which often buck trends in their categories – its ready meals business is growing despite a declining market. The benefit to Sainsbury's would be the reduction of risk and wastage.”
Supply chain expert Aidan Bocci, MD of Commercial Advantage, agreed the deal could benefit both parties, but warned of potential complications.
“The benefit to the supplier in these vendor management deals is that they get much greater visibility of their demand, and a more responsive supply chain,” he said. “But the details are crucial. Issues such as wastage and payment terms can add a lot of complexity. Ultimately if the supplier can cut payment times and the retailer benefits by not paying until after consumer purchase, there’s a potential opportunity for both parties.”
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