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   F   I   R   S   T    I   N    A    S   E   R   I   E   S    O   N    R   E   T   A   I   L    O   P   E   R   A   T   I   O   N   A   L    E   F   F   E   C   T   I   V   E   N   E   S   S
O P E R AT I O N AL
E F F E C T I V E N E S S 
VPI DELIVERS A BOOST TO MARGINS 
 golden
egg
a
for
retail 
 
ABOUT THE RETAIL OPERATIONAL EFFECTIVENESS SERIES:McKinsey's Retail, Apparel and Hospitality Practicedeveloped this series ofarticles to help retailers enhancetheir performance by utilizing optimizing tools and noveloperations approaches. This is the first in a series ofoccasional articles.ABOUT THE AUTHORS:The authors are leaders ofMcKinsey’s Retail VendorPerformance Improvement initiative. Laura Meinke is aconsultant in McKinsey's Cleveland office, Elizabeth Mihasis a consultant in the Chicago office, Michelle Mooreheadis a consultant in the Dallas office, and Nick Semaca is aprincipal in the Chicago office.COPYRIGHT © 2000 MCKINSEY & COMPANY.ALL RIGHTS RESERVED.
 
VPI
:
A GOLDEN EGG FOR RETAIL
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etail earnings are feeling the squeeze. The Internet, industryconsolidation and changing demographics are all applyingpressure to the top and bottom lines. Yet a powerful optimizingtool, Vendor Performance Improvement (VPI), remains little used andpoorly understood.VPI is a rich process that enhances retail margins by deepening buyers’knowledge of their category’s economics. It embraces vendors as partnersin the systematic assessment of vendors’ capabilities — existing andpotential — and retailers’ opportunities to improve in categorymanagement, buying, and logistics. The disciplines and organizationalprocesses that comprise VPI allow merchants to think beyond individualbuys to develop a strategic view of their business while driving dramaticincreases in growth and profitability. This article will:•Show how VPI can lead to substantial profit improvements throughcost reduction and top-line growth•Examine the barriers to capturing maximum value from VPI•Define the five key practices retailers must adopt to seize the VPIopportunity
VPI DELIVERS A BOOST TO MARGINS 
 golden
egg
a
for
retail 
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