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7/26/2019 Best Practices of VMI
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BestPracticein
Implementing
VMIArecommendationbyECREurope
7/26/2019 Best Practices of VMI
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BestPracticeinImplementingVMI
ArecommendationbyECREurope
ECREurope
ECREuropegatherstogetherallvaluechainpartners:retailers,manufacturersandserviceproviders,whoshare
acommonbeliefthatbyworkingtogetheronnoncompetitivematterswecanbringtransformational change
toourindustrythatbenefitsourshoppersandconsumers.
Asharedvision:Working togethertocreatevalueforconsumers inasustainablewayBetter, fasterandat
lesscostwithasharedbusinessprocessleadingtosharedbenefitsacrosstheValueChain.
This handbook is primarily aimed at supply chain professionals in retail industryfor Supply Chain, Logistics and IT
professionals. The manual is partly based on GS1 Switzerland Merchandise Planning Models Guidebook, published in
2013 and was completely reworked in 2014 under ECR Europe initiative by group of experts lead by Hele Hammer,
AssociateProfessoratTallinnUniversityofTechnology.
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Contents
ExecutiveSummary................................................................................................................................................. 4
1.
What
is
VMI
.....................................................................................................................................................
5
1.1. VMIprinciples.......................................................................................................................................... 5
1.2. VMIusageinEurope................................................................................................................................ 6
1.3. VMIModels:DistributionCenterversusDirectStoreDelivery............................................................... 6
2. VMIsetupprojectsteps.................................................................................................................................. 8
2.1. EvaluateVMIBusinessCase................................................................................................................... 10
2.1.1. BenefitsofVMI............................................................................................................................... 10
2.1.2. CostBenefitAnalysis:VMISavingsCalculator............................................................................... 11
2.1.3. Riskanalysis.................................................................................................................................... 14
2.2. PlanVMIproject:timeandresources................................................................................................... 15
2.2.1. VMIprojectschedule...................................................................................................................... 16
2.2.2.
VMIproject
organisation
................................................................................................................
16
2.2.3. Projectteamskillsandresponsibilities .......................................................................................... 17
2.3. SelectVMItargetcategoriesandproducts............................................................................................ 18
2.3.1. WhichsupplierstoincludeinVMIprogram?................................................................................. 19
2.3.2. Min/MaxstocklevelsforVMIproducts......................................................................................... 20
2.3.3. Determiningdeliveryunits/DCVMIfulltruckloads...................................................................... 21
2.3.4. ProductMasterData...................................................................................................................... 23
2.4. Terms:SetGoalsandTerms(VMIContract).......................................................................................... 25
2.4.1. KPIsformeasuringthesuccessofVMIproject............................................................................. 25
2.4.2. VMIContractbetweenvendorandretailer................................................................................... 28
2.5.
Align
IT
and
business
..............................................................................................................................
29
2.5.1. Internalandexternalbusinessprocesschanges............................................................................ 29
2.5.2. VMIprocessandEDIdocuments.................................................................................................... 30
2.5.3. VMItechnologicalsolution............................................................................................................. 32
2.5.4. SetupandtesttheVMIsolution.................................................................................................... 34
2.6. Rollout:PilotandOnboardPartners.................................................................................................... 36
2.6.1. PilotyourVMIprogram.................................................................................................................. 36
2.6.2. Trainandgolive............................................................................................................................. 36
2.6.3. Onboardadditionaltradepartners............................................................................................... 38
3. VMIperformanceandcontrol....................................................................................................................... 38
3.1. ReviewandAdjust................................................................................................................................. 38
3.2.
Monitorongoing
VMI
programs
............................................................................................................
39
3.3. ITsolutionsforKPImonitoring.............................................................................................................. 40
4. CriticalSuccessFactorsforVMIprojects...................................................................................................... 42
4.1. BusinessRelationshipfactors................................................................................................................ 42
4.2. Companyinternalfactors...................................................................................................................... 43
4.3. TechnicalandVMIspecificfactors......................................................................................................... 43
APPENDICES.......................................................................................................................................................... 45
Appendix1.ECRthinking.................................................................................................................................. 45
Appendix2.VMISampleContract.................................................................................................................... 46
Appendix4.MasterDataManagement:Background...................................................................................... 49
Appendix5.
Glossary
........................................................................................................................................
51
Appendix6.Demosoverview/VMIserviceproviders..................................................................................... 54
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ExecutiveSummary
Vendor Managed Inventory (VMI) is a replenishment strategy where the traditional ordering process is
eliminatedand thesupplierhastherightandresponsibility tomakestockreplenishmentdecisionsbasedon
regular automatic inventoryand / or sales data from buyer. This handbook on VMIcontains instructions for
practitioners,
explaining
automated
replenishment
processes
and
providing
support
for
project
managers
in
implementingVMIreplenishmentprocesses.
The decision to implement VMI is a strategic decision impacting many departments (logistics, procurement,
planning, sales and marketing) and strengthening cooperation between supplier and buyer. The aim of this
collaborationistomakethereplenishmentprocessmoreefficientatlesscost.
BusinesscaseforVMI
VMI programs offer the potential for dramatic improvements in supply chain and financial performance.
Replenishment decisions are made by the supplier based on agreed key performance indicators (KPIs),
including availability and stock turnover. Quantitative performance improvements that customersusing VMI
haveachievedinclude:
Increasein
availability
of
25%,
(and
related
increase
in
sales
revenues)
Reductionininventorylevelsof15to40%(andrelateddecreaseincapitalcosts)
Additional benefits include less OOS, more efficient production scheduling, improved responsiveness to
customerneedsandchangingmarketconditionsandbetterrelationshipswithpartners.
Thefollowingruleofthumbapplies:thebiggertheshippingvolumewiththebusinesspartneristhegreaterare
the percentagebased potential savings. It is estimated that savings up to 23% of total turnover can be
achievedwithVMIprogram,ifappliedcorrectly.
VMIsetupprojectsteps
Infirst
chapter,
the
6major
steps
in
aVMI
implementation
project
are
explained
in
detail.
CriticalSuccessFactorsinVMIProjectImplementation
SuccessfulVMIprojectsarebasedonanumberofkeyfactors:thecommitmentofseniormanagementfrom
both buyer and vendor organizations; welldefined agreements on goals, service levels, and risks; and tight
integration
with
systems.
With
these
elements
in
place,
good
communication
and
change
managementpracticescanhelpyouoverthefinishline.
Conclusionsfroma2014masterthesisdefendedatTallinnUniversityofTechnology,askingforexpertopinions
from theECRmembercompanies inEuropeaboutwhatare thecriticalsuccess factors forVMIProjects,are
presentedinchapter4.
LotofPracticalTipsandTricksinAppendices
Tipsforprojectorganisationand implementation andvariouschecklistsaswellasasampleVMIcontractare
included.
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1.
WhatisVMI
1.1.VMIprinciples
Supplychains
must
be
managed
to
ensure
that
all
supply
chain
participants
are
aligned
regarding
demand
and
agreedinventorylevels,andthereisareliablereplenishmentprocesstosecureproductavailabilitythroughthe
entiresupplychainatthelowestpossiblelogisticscosts.
Vendor Managed Inventory (VMI) is an alternative to the traditional orderbased replenishment practice,
beingamoreefficientsupplychain integrationstrategyandcollaborationconcept. InaVMIrelationship,the
supplierisempoweredtomanagecustomersinventoryandreplenishthegoodsatcustomersiteautomatically
underagreedconditionsandrules.Insteadofsendingthepurchaseorders,retailerssendinventoryandsales
informationelectronicallytosupplier.Basedonthisdemanddata,suppliermakesperiodicresupplydecisions
regarding order quantities, shipping, and timing (see Figure 1). The information about real demand will be
transparenttothevendor,reducinguncertaintyforitsproductionandoperationalplanning.
Figure1.ReplenishmentprocesswithVMI
Electronic Data Interchange (EDI) is used for exchanging relevant trade documents to ensure completely
automatedorderprocessing.Thisisassociatedwith investmentononehandandsavingsandefficiencygains
ontheother.
VMI is a tool which facilitates efficient processes in inventory management. The aim of VMI is to ensure
availabilityandfreshnessatthepointofsalewiththelowestpossiblelogisticscostsandmaintainingthelowest
possibleinventorylevelacrosstheentirepurchasingchain.
Thisis
only
possible
if
all
parties
speak
the
same
language,
share
an
understanding,
apply
the
same
standards
and methods and work together on a constructive basis. In any case, commercial pressure in the consumer
goods industry will force companies to further streamline their purchasing processes, in order to achieve a
sustainedincreaseinefficiencyandprofits.
VMIgivesthesupplierbothresponsibilityandauthoritytomanagetheentirereplenishmentprocess.
Thechangeisfundamentalbymakingtheavailabilityandinventoryturnoverthenewprimarymeasuresofthe
suppliersperformanceinsteadofdeliverytimeandpreciseness.
ThenatureandextentofVMIimplementation isnotanITprojectortopmanagementprerogativeimposingon
therest of theorganisation. AVMIproject is in facta majoreffort thatwill require participation frommost
departmentsoftheorganisationandwillinfluenceandchangeallofthedimensions.Therefore,Itisnecessary
toemployaholisticviewofstrategy,structure,people,andtechnology.
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1.2.VMIusageinEurope
ECRNI Established LocalECRmembers Marketshare1 VMIpenetration
RetailersSuppliers Total
ECRSwitzerland 1999 15 120 135 90% 5075%
ECRFrance 1997 17 45 59 90% 5075%
ECRAustria 1996 12 63 75 95% 1025%
ECRItaly 1993 14 46 60 80% 1025%
ECRBaltics 2007 4 12 16 50%
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Figure2.VMItobuyersdistributioncentre(warehousedelivery,DC)
VMIbetweenVendorandBuyerindividualstores(DSD)
WhilemostoftheVMIrelationshipsarebetweenVendorandBuyerDC,thereareagreementswherevendors
aremanagingtheirproductsattheretailstorelevel(seeFigure3).InDSDVMI,individualshopssenddailyPOS
(pointofsales) data and regular inventory data to Vendors. Similarly to DC VMI, Vendor and Buyer have to
agreeminandmaxstock levelsforeach item ineachstore.Usingdynamicminandmaxstock levels(inDSO
ratherthanunits,readmoreinchapter2.4),thisagreementismanageable.BasedonPOSdata,Vendormakes
replenishmentdecisionsanddeliversproductstoshops,ensuringavailabilityandoptimizinginventorylevels.
Figure3.
VMI
direct
to
stores
(direct
store
delivery,DSD)
IncontrarytoDCVMI, insteadofpotentialsavings intransportationcosts,DSDVMIwillmore likely increase
transportation costs for the supplierdeliveries are smaller and more frequent. However, increase in
availability, freshness and therefore, sales, usually more than offset the cost increases. DSDVMImodel also
requires much more sophisticated systems on both Buyer and Vendor side and high level capabilities on
Vendorside.
VMIversusCMI(CoManagedInventory)
Inadditiontodifferencesinoperatingmodel(DCversusDSD),therearevariationsofVMIdependingonwhere
the
right
and
responsibility
of
replenishment
decisions
lay.
InDSDVMI,usuallyretailershavedefinedproductassortmentsandplanogramsandallowvendorstomake
replenishmentdecisionsinthatframework.SomeVMIprogramsgoevenfurther:retailersallocateshelfspace
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andallowmanufacturerstoplanalsoproductassortmentsandfacingsinadditiontoreplenishmentquantities.
ThisrepresentstheultimateinVMI,givingmanufacturerscontroloverallmerchandisingdecisionsinindividual
stores.
Ontheotherhand,inbetweenBMI(BuyerManagedInventory)thetraditionalwayofproductreplenishment
andVMI,thereisalsoCMI(ComanagedInventory).Thekeydifferenceisthatorderplacedbythesupplieris
still
a
recommendation
and
is
not
a
firm
order
until
approved
by
the
customer
(see
Figure
4).
In
a
VMI
process,
the order generated by the supplier on the customer's behalf is a firm order to deliver product and bill the
customer. We can also distinguish between VRI (Vendor Replenished Inventory) and VMI, where the latter
would then include also ability to decide on assortment, notjust mecanically replenishing what has been
decided.
Figure4.Inventorymanagementmodelsoverview(BMIBuyerManagedInventory,CMI CoManagedInventory,VRIVendorReplenished Inventory,VMIVendorManaged
Inventory)
2.
VMIsetupprojectsteps
WhileemployingVMIinatraderelationshipingeneralisaprocessandnotaproject,thefirsttimetheVMI
isimplemented,itshouldbemanagedasaprojectinordertobesuccesful.AVMIprojectcanbedividedinto
sixbasicphases(see
Figure5).
1.
EVALUATE:Business
case
2. PLAN:Projectdefinitionandplanning
3. TARGET:Choosecategoriesandsuppliers
4. TERMS:Setgoalsandterms(contract)
5. ALIGN:AlignITandbusiness
6. ONBOARD:pilotandonboardsuppliers
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Figure5.ThesixstepsinaVMIproject
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2.1.
EvaluateVMIBusinessCase
An ideaforaprojectshouldbecarefullyexamined todeterminewhetherornot itbenefitstheorganization.
Duringthisphase,adecisionmakingteamwillidentifyiftheprojectcanrealisticallybecompleted.
InVMImodel,shorttermdemandforecastingonretailersideandflowofpurchaseordersareremovedfrom
the supply chain. Absence of these elements eliminates delays in information and product flows, and
significantlydecreasestheimpactofuncertaintyanddistortioninsupplychaindecisionmaking.
2.1.1. BenefitsofVMI
ThebenefitsofVMIaremainlyrelatedtocostreductions,service improvementsandgreatertransparency in
thesupplychain.QuantitativeperformanceimprovementsthatcustomersusingVMIhaveachievedinclude:
Increaseinavailabilityof25%, (andrelatedincreaseinsalesrevenues)
Reductionininventorylevelsof15to40%(andrelateddecreaseincapitalcosts)
Thebenefitscanbegroupedintothree:1)sharedgainsofVMI,2)buyerspecificgainsand3)vendorspecific
gains(seeFigure7).
SHAREDGAINSFROMVMI
Betteravailabilityandlessoutofstock(OOS):higher
revenues
VMImakesitpossibletodeliverrightproductsattherighttime
totherightplace.Theavailabilityofstockandsalesdataat
shoplevelhelpssupplierstomakebetterreplenishment
decisions,avoidingOOSandincreasingOSA.Additionally,
visibilityatbuyerlevelisusefulwithpromotions,asthose
productsthathaverunoutcanbequicklyreplenished.
Lowerinventorylevels:releasedworkingcapital
Fasterinventoryturnsmeanthatinventorylevelscanbe
reduced.
As
real
demand
is
shared
with
supply
chain
partners,
alsothereservestockcanbesmaller.Lowerinventorylevels
meansavingsincostofcapital,aslesscapitalistiedupinthe
inventories.
Fasterinventoryturns:fresherproductsandlessmarkdowns
Asstockisreplenishedmoreoften,theproductsarelesslikely
tobecomeobsolete.Thisdecreasestheneedtosellleftover
stockwithreduced rices.
FredMeyer,the131unit
supercenterschaininAmerica,
reduceditsinventories30%,while
salesroseandservicelevels
increasedto98%. Thiswasdueto
aVMIprogramimplementedwith
twoke
ood
vendors.
OshawaFoods,a$6billion
Canadianfooddistributorand
retailer,hadtremendoussuccess
withPillsbury,QuakerandH.J.
Heinzwithturnsimprovingfrom
3to9times,whileachieving
customerservicelevelsof99%.
This,however,cameaftersome
initialadjustments
in
the
programbecauseofthehasty
natureofinitial implementation.
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Figure6.BenefitsofVMItobuyerandvendor
Figure7.BenefitsofVMI:Sharedgains,vendor
specificgainsandbuyerspecificgains
AllthosenumerousbenefitsdescribedonFigure7formulatethesetofthereasonswhyVMIconceptshouldbe
implemented. As specific benefits depend on particular business case, it is crucial for all parties involved to
analyse and understand the possible benefits, and have a buyin into the idea. Only then could VMI be
implementedsuccessfully.
2.1.2. CostBenefitAnalysis:VMISavingsCalculator
In order to calculate return on investment (ROI), in addition to revenues also costs should be estimated.
Implementing VMI requires investments like executing any other project in the company. The costs of
implementingVMIvarytoa largeextentanddependondifferentcharacteristicsofthecompanysuchasthe
size of the company, the ERP systems used in the company, the role of the company in the supply chain
(vendor/buyer)andsoon.
Thecostscanbedividedintotwogroups:1.Initialinvestments,2.Operational(ongoing)costs.
1.VMI
project
initial
investments
2.
VMI
operational
costs
Initial costs include investments into business process The costs which continue with the use of VMI after
GrandUnion,aNewJerseybased
groceryretailerwithmorethan
100storesandthreeDCs,
improvedinventoryturnsbyclose
to80%
and
achieved
99%
service
levels. Thissignificantlyimproved
salesbyeliminatingoutofstock
conditionsanddramatically
reducedwarehousingcosts.
BUYERSPECIFICGAINSFROMVMI
Reduction
in
ordering
costs
Sinceorderingfunctionshasbeeneliminated
fromtheprocess,thebuyersbenefitfrom
reductionofadministrativeexpenses.Asthe
numberofbackordersandreturnsreduce
significantly,administrationcostsdecrease
evenmore.
Optimizedretailspaceproductivity
Asbothgeneralinventoryandsafetystock
levelsarereducedwithVMI,thisallowsfor
possibilitytoincreasetherangeofgoods
offered.
VENDORSPECIFICGAINSFROMVMI
Productionaligned
to
customer
demand
Theautomatedandregulardataexchange
ensuresacontinuousdemandinformation.
Upstreamproductionalsoreceivesconsumption
figuresregularly,makingitpossibletoplanthe
nextoptimumproductiondate.Thisproducesa
furtherreductioninthesupplychaininventory
levelsandtheassociatedcostofcapital.
Optimisationoftransportationcosts
ForcentralwarehouseVMI,itispossibletoaim
forfulltruckloadsandtransportationcosts
optimization.Automaticexchangesofuptodate
stock
data
and
sales
figures
result
in
sensible
ordervolumes,i.e.fullpallets,whicharedelivered
dailytogetherwithotherproductsofthevendor
asfulltruckloaddeliveries.
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change,newsoftwaresystems,andpersonneltraining:
VMIsoftwareandhardware
Costofchangingbusinessprocesses
ITsupport inhouseandexternal
Personneltrainingcosts
Projectmanagementcosts
GS1
Switzerlands
(2011)
estimation
of
total
costs
for
a
vendor company setting up VMI were about 75 to 130
thousand. These estimations were done for companies
settingupVMIforthefirsttime.Thecostforsettingupan
additionalVMIpartnership(withanotherretailer)shouldbe
considerablyless,amountingto 20%oftheinitialcosts.
Thecostsforabuyercompanyare2/3less,consideringthat
theVMItechnologicalsolutionwillbesetup atvendor,not
buyerside.
implementationarethefollowing:
VMI process manager/team costs. The extent of
personnel used in VMI process depends on one hand
which VMI level is chosenis it pure VMI or is it co
managed inventory (in latter case, there is a VMI
manageronbuyersideaswell).On theotherhand, the
amount of work on vendor side depends on which VMI
model ischosen,DCorDSDVMI. InDSDVMI,at least1
FTEshouldbeplannedforthework.
VMIoperationalcosts. Operationalcostsincluderunning
costs of new equipment and new software (a VMI
solution for vendor, and potential adjustments in buyer
system),ITsupportforVMIsolution,andelectronicdata
interchange(EDI)coststoserviceprovider.
Inaddition,ifconsignmentispartofthedeal2,runningcosts
alsoincludeinventorycarryingcostsforsuppliers.
VMIsavingscalculatorforVendor
Onehandytooltoestimatethenetbenefits(allpotentialsavingsminusallpotentialcosts)fromswitchingto
VMI is to use a VMI savings calculator. This is a strategic level tool for defending the business case to your
partnersoryourmanagementboard.Forexample,asimpleExcelbasedcalculatorcreatedbyTelemacanbe
used.TheTelemaVMISavingsCalculatorincludesseparatemodelsforbuyersandvendors.
InTelemaVMISavingsCalculatorfor theVendor,allcells inbluearecells thatshouldbefilledwithrelevant
dataforthespecificcompany(thenumberstherearejustanexample).ForVendor, thefollowingshouldbe
enteredasinputs:
VMIshareofallbusiness,
totalsalesandsalesmargin,
accountsreceivable,
transportationcosts,and
weightedaveragecostofcapital.
For calculator to work, the user should estimate the extent of VMI benefits. For vendor, these are in three
categories:Accountsreceivable(AR)reduction,reducedtransportationcostsandincreasedsales.
Next,bothinitialinvestmentandongoingaverageannualoperationalcostsshouldbeestimated.Asexplained
inpreviouschapter,vendorbearsbiggerinitialsetupcoststhanbuyer,asthetechnologicalsolutionwillbeset
upatthesupplier.TheresultingsavingscalculationforVendorisdepictedonFigure8.
2
Largeretailers
may
rely
on
their
leverage
to
pressure
the
vendor
into
consignment
deals.
These
customers
own
the
current
inventory
at
their locations.Oncetheconsignmentagreementhasbeensettled,customersstillhave inventoryattheir locationsbutthecapitalofthe
inventory isdisengaged.By entering into consignment agreementswith supplier, customersare effectively transferring their inventory
carryingcostandcapitalopportunitycosttothat supplier.
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Figure8.SampleVendorVMIcalculationsusingTelemaVMICalculator
VMIsavingscalculatorfortheBuyer
Justlikeforvendors,itisusefultohaveahandytooltoestimatethenetbenefits(allpotentialsavingsminusall
potentialcosts)fromswitchingtoVMIforbuyers.TheTelemaVMISavingCalculatorisisastrategicleveltool
fordefendingthebusinesscasetoyourpartnersoryourmanagementboard.
As in Vendor calculator, all cells in blue are cells that should be filled with relevant data for the specific
company(thenumberstherearejustanexample).ForBuyer,thefollowingshouldbeenteredasinputs:
VMIshareofallbusiness,
currentinventoryonhand,
annualsalesandsalesmargin,
numberof
purchase
orders
and
order
processing
cost
per
order
weightedaveragecostofcapital.
For calculator to work, the user should estimate the extent of VMI benefits. For buyer, these are in three
categories:inventoryreduction,reducedorderprocessingcostsandincreasedsales.
Next,bothinitialinvestmentandongoingaverageannualoperationalcostsshouldbeestimated.Asexplained
in previous chapter, buyer bears less costs than vendor in setting up the VMI system, as the technological
solutionwillbesetupatthesupplier.TheresultingsavingscalculationisdepictedonFigure9.
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Figure9.SampleBuyerVMIcalculationsusingTelemaVMICalculator
2.1.3. Riskanalysis
WhiletherearenumerousbenefitsofVMI(seeFigure7),someconcernshavetobetakenintoaccount.Outof
tenVMIimplementations, onlythreeorfourachievegreatsuccess,threeorfourreapsomebenefitsbutnotas
much asanticipated, and two or three fail3.The confidentiality of information sharing between retailer and
supplier,theriskoflossofcontrolbytheretailer,thepotentialincreaseinvendorsadministrativecostandless
thanexpectedbenefitsforsupplierarethemajorpotentialshortfallsofVMI.
(Carlosaidhewillimprovethischapter)
3E2Openwhitepaper
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Figure10.RiskandmitigationplanduringVMIimplemantation
Figureunderconstruction,inputwelcome.
BusinessCase
chapter
needs
conclusion,
something
like:
Afterhavingthefinancialfeasibilityandoperationalfeasibilityaswellasriskanalysiscovered,theproject
managerisreadytopresentthecasetotopmanagement.
2.2.
PlanVMIproject:timeandresources
Veryimportantforthesuccessofaprojectisitswellplannedcommunication.Forthat,itisadvisabletochoose
anamefortheproject,determinethetimeframe(startandenddates),writeashortbusinessoverview,clearly
definethegoalsoftheproject,dividerolesanddutiesofproject,andplanforcommunication(whoisinformed
whenaboutwhat).
In early stages, it is appropriate to advise two to three members of the management team before officially
presentingthebusinesscase.This lobbyingwork isvery importantforthefurtherprojectstages. Itresults in
relevantfeedback,whichmaybehelpful inboththedecisionmakingmeetingandsubsequentmeetingswith
thepartner.
A projectplan should be put in writing, outlining the work to be performed. Duringplanningphase, a team
should prioritize the project, calculate a budget and schedule, and determine what resources are needed.
Resources' tasks are distributed and teams are informed of responsibilities. The project plan should also
describe which questions will be answered in what stages of the project. Table 1 describes the factors
important
for
successful
change
project
execution.
Table1.Successfactorsforchangeprojects
SUCCESSFACTORSINCHANGEPROJECTS
Strongandconsistentsupportandcommitment
fromtopmanagementisprovided
Adequatecompositionofthechangeteam(inboth
breadthandknowledge)
Strategicalignmentwithcompanystrategic
directionobjectivesfortheprojectisdefined
Availabilityofresources(establishingresourcebase
onfrontend),includingthefinances
Compelling
business
case
for
change
with
measurableobjectives,i.e.clearcost/benefit
analysisisavailable
Employee
involvement
(through
communicating
andempowering),i.e.usersoftheVMIsolutionare
involvedintheimplementation stage
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Provenmethodologythatincludesavision
process
Establishtimelimitontheproject(decideon
timeframetoavoidoverruns)
Effectivechangemanagement,stronganddedicatedprojectmanager,rolesandresponsibilities clearly
assignedtoteammembers
Source:
Based
on
Business
Process
Reengineering,
2000
2.2.1. VMIprojectschedule
Theprojectscheduleisthetoolthatcommunicateswhatworkneedstobeperformed,whichresourcesofthe
organizationwillperformtheworkandthetimeframesinwhichthatworkneedstobeperformed.Theproject
schedule should reflect all of the work associated with delivering the project on time. Without a full and
completeschedule,theprojectmanagerwillbeunabletocommunicatethecompleteeffort, intermsofcost
andresources,necessarytodelivertheproject.
For VMI, it is estimated that it can take 68 months elapse from the initial idea to the review. The actual
planningphasecanbecompletedinjustafewweeks.
Agraph
with
steps
and
appropriate
time
periods
would
be
nice
here,
like
this:
Figure11.VMIsetupprojectapproximatetimeline
(explainthefigure,makeitbigger)
Itisrecommendedthattheprojectstagesbecoordinatedandimplementedjointly.Priortotheactual6stage
process, the commitment of both management teams to joint clarification of any issues related to VMI
implementation is required. Without such commitment, the chances of the project being on time,
commerciallyadvantageousanddeliveringsustainablesuccessforbothpartiesaresmall.
2.2.2. VMIprojectorganisation
ImplementingVMIinvolvesmanydepartmentsacrossbothvendorsandretailersorganisations.ForVMI
project,apossibleorganisationalstructureisasdepictedonFigure12.Inthiscase,thevendorandretailer
determinetheprojectteamafterjointlydecidinginfavourofaVMIsolution.Theprojectteamincludes
employeesresponsibleforimplementation.Afterimplementation, vendorscustomerservicesdepartmentisin
chargeforthedaytodayoperation.
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Figure12.SuggestedProjectorganisationforanVMIproject
TheVMIprojectmanagerhasoverallresponsibility fortheproject.Hereportstotheprojectcommitteeand/
orprojectsponsor,whointurninformstheclients.Theindividualemployeesinvolvedinprojectfromvarious
departments both on the vendors and retailers side, are given their tasks and deadlines by the project
manager.Theyinturnreportbacktotheprojectmanageronthestatusoftheirwork.
Due to the fact that two parties (vendor and buyer) are involved in the project, it is recommended that a
project sponsor be elected. He reports to the management and the project committee and coordinates the
project team. Although all parties have responsibility for the success of the project, the role of the project
sponsorisofparticularimportance.Heisnotonlyatthetopoftheprojecthierarchy,butmustalsoensurethat
one of the most frequent reasons for projects failing is avoided, namely lack of support from the top
managementoftheparticipatingcompanies.Moreaboutkeysuccessfactors inVMIprojectscanbefound in
Chapter4.
2.2.3. Projectteamskillsandresponsibilities
ResponsibilitiesforeachactivityinaVMIproject
should be assigned to specific team members.
The RACI model brings structure and clarity to
describing theroles thatproject teammembers
play in a project RACI model is a matrix that
clarifies responsibilities and ensures that all
activitieswill
be
done.
ToapplytheRACImodel,allactivitiesshouldbe
listed, and for each activity then specified who
isResponsible, who isAccountable, and where
appropriate, who needs to be Consul
tedorInformed (see panel on the right for
explanations).
Using a RACI model promotes common
understanding of processes related to
implementing VMI. A sample RACI chart
describingimplementingVMIisshowninTable2.
Asarule,
only
one
person
(role)
should
be
accountable
for
each
process.
However,
several
persons
may
be
responsiblefor,consultedonor informedaboutanactivity. Itmayalsohappenthataperson isatthesame
timeaccountableandresponsibleforanactivity.
RACIchartusesthefollowingdefinitions:
Responsiblefortheactualimplementation.Theperson
who takes the initiative for implementation (by others)
or who himself implements the activity. This is also
interpretedasresponsibilityinthedisciplinarysense.
Accountable forcostswith responsibility in thesense
ofapproval,
granting
or
signing.
The
person
who
is responsible in the legal or commercial sense. This is
also interpreted as responsibility from a cost centre
pointofview.
Consulted advisory role (specialist responsibility). A
person who is consulted for advice. This is also
interpretedasresponsibilityfromatechnicalstandpoint.
Informed to be informed (right to be given
information). A person who receives information about
progressand/ortheoutcomeofanactivity,orwhohas
therighttobeinformed.
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Table2.RACIresponsibilitieschartforVMIproject
TaskProject
manager
Customer IT
manager
Marketing Sales Customer
services
Master
data
Definetarget
categories
and
suppliersR/A C C C C
Comparemasterdatawith
customerR/I A C C C A
Specifybusiness processes R/A C C
Specifytechnicalprocesses R/C C A C
VisualiseITsystems
architectureA I R I I
Errorhandlingingoods
delivery R/I R C C
SpecifyKPIsand project
reviewR/A C C
RResponsibleforexecution
AAccountableforimplementation
CConsultedforagreementandcoordination
IInformedaboutprojectprogress
ThemainskillsneededfortheVMIprojectmanagerare:
Deepprocessunderstandingregardingorderingprocess
Understandingdifferentapproachesofplanningprocess
Understandinghowpromotionsimpacttheregularbusiness
Interfacemanagementskills
Skillsdodeveloptestprocedures,
Skills to develop exception reports to monitor the day to day operation and standard reports for
internalandexternaluse
Listeningskills
Executionskills(makethingshappen)
Deliveryontime(tobearolemodelfortheteam)
In case those skills are not available, it is strongly advised to acquire external support. Many managementconsultancies, EDI service operators and VMI solution providers can help with professional VMI project
managementsupport.Thiswillgreatlymitigatethegoliverisk.
2.3.SelectVMItargetcategoriesandproducts
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2.3.1. WhichsupplierstoincludeinVMIprogram?
PastexperiencewiththeimplementationofvariousVMIprojectshighlightsthatanypreviouscollaborationon
optimization (efficient product introduction, efficient promotions and efficient placement) facilitates VMI
implementation,asthepartiesalreadyknowandtrustoneanother.
WithwhattypeofcompaniesandproductswillVMIwork? ApopularbeliefisthatVMIisvaluableonlyforhigh
volume items with relatively stable, predictable and repetitive demand tojustify the additional investment
requiredfor
starting
VMI
(Cooke,
1998).
WalMart
and
Procter&Gamble
have
had
aVMI
program
together
for
over 25 years to manage the inventory and production of disposable diapers with great success. Inventory
turnsdoubled,WalMarts'operatingcostsfell,andP&G'smarketsharegrew.
Clark&Hammond(1997)andDeakins(2008)bothshowthatVMIismoredifficulttoimplementwhendemandis
volatileornotreasonablypredictable(fashions,seasonalfoods,etc.).Disney&Towill(2003a)studiedtheeffectof
VMIonthebullwhipeffectforbothlow andhighvolumeproductionandshowedthatVMIhaspositiveeffecton
bothlowvolumeandhighvolumeproducts.
Thereareindustrieswherethevolatilityofconsumerdemand,localconditionsormarketsizedictatethatthe
buyershouldretaincontrolof inventoryreplenishment. ThiswasthecasewithKMart,whichafterreducing
thenumberofvendorsitworkedwith(from300to50)andimplementingVMIdiscoveredthatitsownbuyers
coulddoabetterjobofforecastingconsumerdemand incertaincircumstances. Somemarketconditionsdo
notmake
VMI
the
best
solution
and
tailored/hybrid
approaches
need
to
be
explored.
Niranjanetal.(2012)havedevelopedatoolkitforpractitionersthatenablemanagerstodeterminewhethera
company isreadyforVMI.They listfifteendeterminantsdividedinthreedifferentareas:1)buyerspecific,1)
productspecificand3)vendorspecificprerequisites(seeFigure13).
Figure13.The15featuresthataffectanorganizationsreadinessforVMI
Source:AdoptedfromNiranjan,WagnerandThakurWeigold,2011
For
example,
Niranjan
et
al
state
that
a
retailer
for
whom
purchasing
is
the
core
competency
would
be
reluctanttoadoptVMIandmay insistonretainingthetraditionalpurchaseorders.Thecriteriamarkedwith
stars on Figure 13 are those that can be improved/changed. For example, good information and
buyer/vendor
Vendors
BUYER VENDOR
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communicationsystemmaynotyetbeinplace,butcanbebuiltovertime.Willingnesstoshareinformationis
alsoamatterofdecision.
Theauthorsofthecurrentmanualbelievethatinadditiontothe6starredcriteria,thereareothersthancan
beinfluenced.Eg,ifstandardproductidentificationisnotyetinplace,thiscanbeinstituted.Onvendorside,
bothadvantagesevidenttobothvendorandbuyerandvendorsarewillingtocooperatearecriteriathat
can
be
influenced
trough
communication
and
enlightenment,
trough
sharing
VMI
related
information.
One
potentialtoolforthatcommunicationisthemanualathand.
FrankehasstudiedVMIadoptioninXindustriesandcarriedoutasurveyaboutbuyerchoosingistsuppliersfor
theVMIprogram.Althoughinanotherindustry,theresultsareusablealsoinFMCGsector.Whendecidingon
whichpartnerstoincludeintheVMIprogram,wesuggenttolookattheissueslistedinTable3
Table3.IssuestoconsiderwhenchoosingtradepartnersfortheVMIprogram
IfyouareaBUYER,considerthefollowingissues IfyouareaVENDOR,considerthefollowingissues
Locationofthesupplier Locationoftheretailer
Categoryofproductssupplied(ie,milkvsclothes)
Volumeoftrade/marginwithparticularsupplier Volumeoftrade/marginwithparticularretailer
Pastrelationshipexperience(length,quality) Pastrelationshipexperience(length,quality)
Pastdeliveryreliability
Shareofpromotionalsalesvsregularsales
For
VMI
rollout,
it
might
be
useful
to
reduce
the
number
of
suppliers
to
get
the
critical
volume.
The
purchasing
departmentshouldevaluateanddecidewhichvendorrelationshipshouldbestrengthenedtogetmorebenefit
outofit.
2.3.2. Min/MaxstocklevelsforVMIproducts
Forproducts included in theVMIprogram, thenextstep is todetermineMin/Maxstock levels forproducts.
TheMin/Maxmethodwasoneoftheearliestautomatedinventoryreplenishmentmethodsusedinenterprise
softwarededicatedtoinventorymanagement.TheMinvaluerepresentsastocklevelthattriggersareorder
andtheMaxvaluerepresentsanewtargetedstocklevelfollowingthereorder(see
Figure14).
Figure14.Min/Maxinventorysystem
TheMin/Maxmethodtracksthecurrenttotalstocklevel,whichistypicallythesumofthestockonhandplus
the stockonorder for every single SKU (product). When total stock reaches the Min value, a reorder is
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triggered.ThereorderquantitytargetstheMaxvalueforthenewtotalstocklevel,henceinsimplestform,the
reorderquantityisthedifferencebetweenMaxandMin(i.e.MaxminusMin).
Anumberofapproachesmaybeused todetermine thesizeofMinandMax inventory levels.TheMin/Max
levelsmaybesetmanuallyorautomatically(byadownloadfromanERPsystem).
Therearemanywaysofcalculatingtheminmaxlevelsforparticularproducts.Tocalculateminmaxlevels,most
modelsneed:
1. thereplenishmentleadtime,
2. servicelevelrequired,
3. orderfrequency,and
4. historicalweeklydemand.
DynamicMin/Maxquantities.
Initsoriginalform,Min/Maxorderingwasconsideredtobeafairlystaticmethodofinventorycontrolwherethe
Min/Maxvalueswererarelychanged,maybeafewtimesperyear.Marqusetal.(2010)haveproposedthatthe
definedMin/Maxquantitiesshouldbedynamicandfollowtheseasonalityandsalesof theproducts forbetter
performance.ThisprincipleissupportedalsobyClaassen,vanWeele,&vanRaaij(2008),whostudiedfivecasesin
differentindustries,andHenningsson&Lindn(2005),whostudiedIkeasVMIapproach,concludingthatdynamic
arrangementfor
minimum
and
maximum
inventory
levels
should
be
preferred
over
static
ones.
ForDCVMI(VendortoBuyerDistributionCenter):Itisadvisabletouseminimumandmaximumtargetsindays
ofsales(DOS).
Itisnotsmarttosetverylowtargetsrightaway,instead,a3phaseprojectwithgraduallylowerstock
levesisrecommendedinordertonotriskproductavailability.
ForDSDVMI(VendortoBuyerindividualshops):Itisadvisabletouseminimumandmaximumtargetsinunits.
Smallershopshavelowertargetstocklevelsthanbigger(orbetterlocated)shops.Incasethedemand
ofthebettersellingshopsishigherthanonetradeunit(TU)perweek,itisrecommendedtoincrease
thefrequencyofdeliverytoensureproductavailability.
2.3.3. Determiningdeliveryunits/DCVMIfulltruckloads
Once Min/Max levels are set for products, next step is to define the ideal replenishment quantity for each
product,takingintoaccountexistingstocklevelsandavailabilityrequirements.Ideally,fullpalletsareshipped
to
the
customer
and
delivered
together
with
other
products
as
a
full
truck
load.
Unfortunately,
this
is
not
alwayspossible,sotheaimmustbetooptimisetheratiooflogisticshandlingcostsandtheaverageinventory
levelintransportation unitsormoney.
Asarule, thevolumeofpromotions isunderestimated. Inmanybusinessrelationships, promotionsaccount
forabigshareandhavealsoadirectimpactonsalesofstandardproducts.Figure15illustrateshowsalesofthe
standardproductfallduringapromotionalcampaign.Suchmassivefluctuationsinsalesmustbeanalysedprior
to technological implementation. It is advisable to use 26 weeks of information. Based on the results, the
correct inventory Min/Max settings must then be aligned with the sales and planning department and
programmed.
Lesswellknown fact:the targetMin/Maxvaluesmaybeexpressed inadditon tounitsalso in
daysofsales (DOS).HavingMin/Maxvalues indaysofsalesratherthan inunitsmakesthem
automaticallydynamic. However,notallsystemsareabletohandleMin/MaXvaluesinDOS.
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Figure15.Impactofpromotionsonsalesofstandardproducts
Todetermineweeklyreplenishmentquantitiesandunits,ananalysisbasedonhistoricaldatashouldbecarriedout.
Weeklyconsumption(incases)iscomparedwiththestandardpalletsize.Iftheweeklyrequirementisamultiple
of the standard pallet size, the conditions for sustainable and successful VMI process optimisation for both
businesspartnersareinplace.InTable4,itemsmarkedingreenareobviouscandidatesforfullpalletdeliveries
due
to
the
high
weeklydemand.
Some
items,
which
have
also
been
defined
as
suitable
for
VMI
(marked
in
amber)aredeliveredinindividualcasestoensurefreshness.Itemshighlighted inredarealsopartofthedefined
VMIproductrange,butwillbereplenishedasdisplayorlayer.
Table4.Determiningweeklyreplenishmentneedsanddeliveryunits
MasterdataHistoricaldata,
26weeksProposal
Vendor
itemno.Itemdescription
Casesper
pallet
Averageweekly
consumption in
cases
Palletsper
week
Optimal
deliveryunit
10103
Pluto
58g
72 324 4.5 Full
pallet
10104 Plutominis1kg 125 185 1.5 Fullpallet
10120 Plutominiatures75g 125 325 2.6 Fullpallet
10121 Plutominiatures150g 125 23 0.2 Case
10125 Plutominiaturesdisp.1,500g 4 480 120.0 Display
32120 Longgrainrice1,800g 72 36 0.5 Case
32200 Longgrainrice900g 144 933 6.5 Fullpallet
42321 pro.activmilk 72 133 1.9 Fullpallet
Onthebasisofthisevaluation,thedecisioncanbemadewhichdeliveryunit(e.g. fullpallet,display,unitor
case per item) is triggered toensure that the target DOS (days of sales) isnot exceeded. Minimum stockor
reservestock isassumed,whichcoverstheaveragerequirementforXdays. Iftheresponsetime isshort, i.e.
theproductsindemandareregularlysupplied;thereservestockmaycovertwotofourdays.Ifreplenishment
takes longer,oroccasionaldelivery interruptionsareexpected,theminimumstockshouldcoverat leastone
week.
Thiscalculationalsofacilitatesthecalculationoftheweeklydeliveryvolume.Inaddition,anoptimisedorder/
deliveryrhythm isderived,whichmustthenbediscussed indetailwiththepartner.Theseparameters,which
havebeenoptimisedintransportterms,canbestoredintheVMIsolutionorthecompanysownERPsystem
and
fixed
settlement
prices
(e.g.
shuttle
tariff
&
express
surcharge)
defined
together
with
the
logistics
service
provider.Bymanagingfulltruckloads,transportcostsarecutwheretoomanypartialdeliverieswerepreviously
triggeredbytheretailer.
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Automaticexchangesofuptodatestockdataandsalesfiguresmakeitpossibletooptimisetheorderdatein
the continuous replenishment process. This results in sensible order volumes, i.e. full pallets, which are
delivered daily together with other products of the vendor as full truck load deliveries. (However, it is
mandatory for these to be coordinated with the retailer in advance (specify in VMI contract), so that
unnecessarystockisnotincreasedontheretailerssideorthebestbeforedateproblemexacerbated.)
Type Fulltruck load
(FTL)
Weekly
require
mentin
pallets
No.of
pallets/
truck
Maxi
mum
weight
Leadtime
forrepl.
Combin
ation
options
FTLtariff
inEUR
Express
sur
chargein
EUR
No.of loads
perweek
Road Confectionery 52 34 18t 12hrs Non 2
Road Nonperishables/ 128 34 18t 12hrs 3plus
Rail Nonperishables/ 54 64 28t 24hrs 1
Road Promotions Adhoc 34 18t 48hrs Non
Total Weekly 234
Nowthattheconsignmentvolumeandconsignmentfrequency(order/deliveryrhythm)havebeendefined,the
optimumweeklydeliveryschedulecanbepreparedwith thecustomer.Adistinctionmaybemadebetween
deliverybyrailorroad,dependingontheproductrange.
Table5.Sampledeliveryschedule
Type
Productrange
Mon
Tues Wed Thurs Fri Sat
Sun
Confectionery,chilled 1 0.30 10.30 10.30**
Road Confectionery,chilled 15.30* 16.30*
Road Nonperishables 9.00 9.00 9.00
Rail Nonperishables 11.00 11.00
Rail Nonperishables 23.00*** 23.00***
Road Promotions X**** X****
Road Promotions X**** X****
* Reservedeliveryslotforadditionalquantities
**
Reservedelivery
slot
after
discussion
with
goods
in
department
*** Reservedeliveryslotforrailtransport
**** Afterdiscussionwithgoodsreceiptdepartment
Explanation: an additional reserve delivery slot is defined for each day to ensure that ramp capacity is not
overextended if additional quantities are required and other suppliers do not face delays as a result. With
regardtopromotionquantities,separatedeliveryslotsshouldideallybedefined.
2.3.4. ProductMasterData
Accurate master data management is a prerequisite for
vendor managed inventory. In master data management
Masterdataistheconsistentand
uniformset
of
identifiers
and
extended
attributesthatdescribesthecore
entitiesoftheenterpriseincluding
customers,prospects,citizens,
suppliers,sites,hierarchiesandchartof
accounts.
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(MDM),businessand ITworktogethertoensuretheuniformity,accuracy,stewardship,semanticconsistency
andaccountabilityoftheenterprisesofficialsharedmasterdata.
____
Master data relevant to VMI includes product related master data and location related master data. It is
importantthatvendorand buyerareabletoexchangeproductrelatedmasterdataaccuratelyandtimely.
All retailers need product master data (product attributes like codes, sizes, colors, units, prices etc) from
vendors. Most retailers have established a certain form (often in Excel) on which allrequired data about all
productsneedstobesent.OftentheserequirementsaremoreextensivethanvendorssERPscanprovide.
RegardingVMI,thereareafewproductmasterdataattributesthatwillbeadditionaltothoserequiredwithout
VMI,mostimportantly,theMin/Maxstocklevelsforeachproduct.
Table6.ProductMasterDatarelevantinVMIprogram,ontradeunitlevel
Field Explanation Samplevalue
1 GTIN GlobalTradeItem
Number
120788734657
2 Description Itemdescription ChocolateBar
3 CU ConsumerUnit piece
4
TU
Trade
Unit
package
5 LU LogisticsUnit pallet
6 CU/TU CUsperoneTU 12
7 TU/LU TUsperoneLU 108
8 Rep.unit Inwhichunitswillthe
itembeordered
CU/TU/pallet
9 Promo Iteminpromoornot Y/N
Product master data isoneof thecomplex data to manage.Thereare manyprovidersoffering solutions to
managemasterdataeffectively.OrganizationshavetochooserightPDMproductwhichiseasytoconfigure,is
highly customizable, extensible and at the same time upgradable. A sophisticated PDM implementation can
havedramaticeffectsonrevenueandincreasingprofit.Theleading15PDMsoftwaresolutionsarelistedhere:
http://www.cpcstrategy.com/blog/2015/02/15 pimsoftwareretailers/
Table7.LocationmasterdataneededinVMIprocess
Field
Explanation
/
Sample
value
1 ShiptoaddressGLN
ProductMaster
Data
needs
to
be
synced
with
vendorandbuyeraccuratelyandtimelytoensure
thesuccessoftheVMIprogram.
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2 InvoicetoaddressGLN
3 Replenishmentfrequency Daily/weeklyorMoandThu
4 Agreeddeliverytime 10:00a.m.
2.4.Terms:SetGoalsandTerms(VMIContract)
WhenproductrangeforVMIidentified,volumesanddeliveryschedulesdetermined,theseshouldbeagreedin
writing.A
VMI
contract
or
aVMI
appendix
to
existing
trade
contract
should
be
prepared,
discussed
and
signed.
AVMIagreementshouldincludesixmajorchapters(seeFigure16).
Figure16.MainchaptersinVMIcontract
Hereacoupleofparagraphsareneeded,referringtoappendixwherethesamplecontractis.
AcomprehensivesampleVMIcontractcanbefoundinAppendixX.
2.4.1. KPIsformeasuringthesuccessofVMIproject
For the VMI project to work, it is necessary to set common goals and use clear key performance indicators
(KPIs)fromthestartoftheproject.KPIsareasetofmeasuresfocusingonthoseaspectsofperformancethat
are the most critical for the current and future successof the project. Thebenefitsof the VMI program are
normallyevaluatedagainstasetofperformancemeasuressuchasshownonFigure17.
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Figure17.PerformancemeasuresofaVMIprogram
A special survey about which KPIs should be used in VMI projects was carried out in 2014 among the ECR
membercompaniesinEuropebyTallinnUniversityofTechnology.33expertsanswered,identifyingtwomajor
VMIprojectKPIgroups
1) Inventorylevel,measuredindaysofsupply(DOS)
2)
Availability,measured
by
on
shelf
availability
(OSA)*
and
out
of
stock
(OOS).
*ForcentralwarehouseVMIprograms,thewarehouseavailability(fillrate)isoftenused.
1.VMIKPI:Inventorylevel
Inventoryefficiency isoftenmeasuredby inventory turnover(ITO). ITO isaratioshowinghowmanytimesa
company'sinventoryissoldandreplacedoveraperiod.TheInventoryTurnoveriscalculatedas
The higher the inventory turnover, the fresher the products and the lower the current inventory. Fresher
products mean fewer discounts and fewer writeoffs because of obsolescence. Lower inventories mean less
capital invested into stock and therefore significant savings in cost of capital. Higher turnover and lower
inventoriesalsomeanpotentialtowidentheassortmentandearnmorerevenues.
Daysofsupply(DOS)couldbecalculatedbyinvertingtheinventoryturnoverfigureandadjustingforunitsof
measure.Forexample,aturnoverof30(thirtytimesperyear)wouldbeequivalenttoatimesupplyof1/30
yearor365/30=12daysofsupply.However,theturnoverratioisbasedonthecostofsalesforthepastperiod
and on the average inventory investment in euros. Aggregate euros and a historical view are not useful to
operations,which
needs
to
match
supply
and
demand
of
specific
items
in
the
future.
Thus,itismoreusefultocalculateDaysofSupplyonitemlevelusingunits,ratherthanmoney:
InventoryturnoverITO= CostofGoodsSold
Average
Inventory
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*Basedonhistory,inmoreadvancedcasesconsideringalsoforecasteddemand
Generally,smaller
days
of
supply
figures
are
indicative
of
aleaner,
more
efficient
inventory
usage,
but
this
can
becarriedtoofar.Fragilesystemshavecrashedbecauseofalackofsupply,sothetargetvaluesshouldbeset
carefully.
2.VMIKPI:Availability
Availabilityisthemeasureofaproductbeingavailableforsaletoashopper,intheplaceheexpectsitandat
thetimehewantstobuyit.Therearedifferentlevelsofavailability:
OnShelfAvailability(OSA).Thisisthemeasurewhichshowsthattheitemisonthestoreshelf.This
measureisusedindirecttostoreVMIprograms.
WarehouseAvailability.Theproductisavailabletoorderfromcentralwarehousetostores.Thisisthe
mostoftenusedmeasureincentralwarehouseVMIprograms.Asynonumusedinindustryisfillrate.
It isalsowisetodistinguishbetweenProductAvailability(measuredbyproductfillratewhetheraproduct
can be supplied from (store) inventory) and Order Availability (measured by order fill ratewhether all
productsintheorder(shoppingbasket)canbesuppliedfromthe(store)inventory).
An Out of Stock (OOS) event occurs when, for some continuous
time, an item is not available for sale as intended. If the retailer
intendsanitemtobeforsale,butthereisnophysicalpresenceofa
saleableunitontheshelf,thentheitemisdeemedtobeOOS.The
OOSeventbeginswhenthefinalsaleableunitofaSKUisremoved
from
the
shelf
and
it
ends
when
the
presence
of
a
saleable
unit
on
theshelfisreplenished1.
TherearealsovariousOOSratescalculatedinindustry,referringtostatisticaldescriptionsofcollectionsofOOS
eventsexpressedasanOOSrate.Theseattributesinclude:1)numberofoccurrencesovertime,2)numberof
simultaneous occurrences, 3) duration, 4) shelf availability, 5) lost unit sales, 6) lost monetary sales, and 7)
numberofcustomersimpacted.
However,oftentheOOSisnotmeasured,asthisisconsideredexpensive.Thetraditionalmethodistoperform
amanualauditofthestoreandmanuallylookforgapsontheshelves.Asecondmethodmakesuseofpoint
ofsale(POS)dataor,morespecifically,scannerdata.Baseduponhistoricalsalesdata,analgorithmisapplied
to sales patterns to determine whether an item is on the shelf. There are many practical paperswritten on
bothOSAandOOSreduction,forexample,anECRWhitepaper4aswellastheP&Gfundedstudy5.
SettingcommongoalsfortheVMIprojectusingKPIs
It is beneficial to agree oncommon target values of KPIs to be achieved by switching to VMI. There can be
many performance indicators that could have agreed target values, but it is useful to include at least one
inventoryturnovermeasureandoneavailabilitymeasure(seedefinitionsabove).ThetargetvaluesofKPIscan
beverymotivating,especially iftheyareagreed inwrittenform,preferably inVMIcontractbetweenvendor
andbuyer.
4Gerhard
Hausruckinger
Approaches
to
measuring
on
shelf
availability
at
the
point
of
sale
Roland
Berger
Strategy
Consultants,ECREurope,2006,http://ecrall.org/files/OSAMeasurementWhitePaperfinal_E1.pdf5ThomasW.Gruen,DanielCorsten,AComprehensiveGuideToRetailOutofStockReductionIntheFastMovingConsumer
GoodsIndustry,2007,http://www.nacds.org/pdfs/membership/out_of_stock.pdf
DaysofSupplyDOS= Inventoryathandinunits
Averagesalesperday*
Theglobalaverageofretailout
ofstocks(OOS)is8.3%atstore
level1,leadingtoanestimated
lossoftotalrevenueof4%.
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2.4.2. VMIContractbetweenvendorandretailer
VMIrelationshipisestablishedusuallybetweenpartnerswhohavebeendoingbusinessforsometimealready.
This means that there already exists a trade contract covering terms and conditions of business, possibly a
qualityagreementandothersupplementingagreements.WhenVMI is implemented, it isnecessarytoeither
replacetheexistingcontractorproduceacomprehensiveVMIappendixtothecurrentcontract.
In the VMI agreement, common goals can be agreed, as well as responsibilities and rights clearly allocated.
BothpartiesmustbeawarethatorganisationalandITadjustmentsarerequiredinordertoimplementthenew
purchasingmethod.AsVMIagreementsareprivatecontracts,theyarenotregulatedbyanylegalcodenor is
thereanycodifiedstructuretoconformto.ThereisusefulacademicresearchaboutstandardVMIagreements,
the most notable by Zammori et al (2009)6. While their work focused mainly on suppliermanufacturer
consignmentVMI,itisstillusefulwithmodifications.
Based on research and practice, the topics to be covered in VMI contract can be divided into six major
chapters:
1. Objectiveandtermsofagreement
2. Servicelevelagreement(SLA),includingKPIs
3. Agreedassortment
and
promotions
4. Deliveryterms
5. Informationexchange
6. Miscellaneous
ExplanationofVMIcontractchapters
1. Objective and terms of agreement. In first chapter, the scope of the agreement (Vendor Managed
Inventory)andthewillingnessofbothpartiestoundertakearelationshipbasedontrustisunderlined.
Theserviceperformedbythesupplierandtheinformationreleasedbythecustomertosupportitare
defined.Additionally,thestartanddurationoftheagreementisspecified.
2. Service
Level
Agreement
(SLA).
In
this
chapter,
goals
of
the
VMI
project
are
specified
in
terms
of
target values for specific performance metrics (KPIs). KPIs shall be tied in with penalties and/or
benefitsandpartiesmustdefinethecontrollingsystem.Handlingofservicelevelproblems,especially
outofstocksituations,iscovered.
Zammori:TheSLA isacharacteristicsectionofanylogisticagreement(i.e.performancebasedagreement)
wherethecustomerandthesuppliercommitthemselvestoattainapredeterminedlevelofperformance.
Thispartdefinestheservicewhichisexpectedtobesuppliedbyboththecustomerandthesupplierand
includesalistofkeyperformanceindicators(KPIs)usedtoquantifyandtoassesstheachievedlevelof
performance.Forthisreason,KPIshavebeentiedinwithpenaltiesand/orbenefits,inordertodefine
congruentbonusmalusincentivesystem.Furthermore,achapterhasbeenincludedwhichgivesthe
possibilityofmakingperiodicinspectionstocheckthepreservationoftheoperatingconditionsand/orof
thequalitystandardsdefinedintheagreement.
3. Agreed assortment and promotions. Third chapter covers the frequency of assortment reviews,
describeshandlingofchangesinassortmentsandspecifiespromotionshandling.
4. Delivery terms. In fourth chapter, delivery slots are defined. Delivery information exchange,
emergencydeliveries,handlingofproblems,andlabellingstandardscovered.
5. Informationexchange.Inthischapter,theEDIchannelsaswellasbackupstrategydescribed.AllEDI
messages are listed with their content, sender and frequency. Productmaster data attributes listed
andexplained.NecessaryinformationgivenaboutVMIlocations(warehouses,shops)
6Zammori,Franceso,Braglia,MarcelloandFrosolini,Marco2009.AStandardAgreementforVendorManagedInventory.
StrategicOutsourcing:AnInternationalJournal.Vol.2,no.2.pp.165186.
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6. Miscellaneous.Inthelastchapter,mostimportantisthelistofcontactsforimportantteammembers
on both sides. Other important legal considerations are covered here: confidentiality, terms of
terminationofcontractandsolvingofdisputes.
Itisimportanttostudyexistingcontractsindetailpriortosigningtheagreementandforthepartiestodiscuss
allaspects.Consensusisrequiredonthemostimportantpointstoavoidenteringintoadditionalobligationsvia
the
VMI
agreement.
If
the
wording
of
the
same
contractual
points
differs
in
the
various
agreements,
it
is
advisabletoadjustthesepointsinthenewagreementtobesigned,orexpresslystipulatethisinanadditional
agreementtotheVMIcontract.Thisprocedureprovidesclarityintermsofthelegalbasisandhelpstofocuson
theamountofdebtanddamages intheeventofadispute. Inparticular,howtohandleexceptionsandsolve
problemsinthenewcollaborationshouldbecovered.
AcomprehensivesampleVMIcontractcanbefoundinAppendixX.
Pointstoconsider(notinsamplecontractcurrently)
VMItrainings
pointof
transfer
of
ownership
reliabilityandsharedrisk
transferofservicestoathirdpartyprovider(e.g.,transportationbyalogisticsserviceprovider)
Numberofweeksofforecastdemandusedforplanningreplenishmentlevels
Financialaspectsofrelationship(setupcostssharing,penalties/bonusesifany)
2.5.
Align
IT
and
business
2.5.1. Internalandexternalbusinessprocesschanges
Whenproductrange forVMI identified,volumesanddeliveryschedulesdetermined, internalprocessshould
bereviewedandmodifiedtosupportthenewreplenishmentstrategy.Itisadvisableto:
Share experiences with other vendors and business partners who have implemented the vendor
managedinventorymodel.
Describetargetprocessesanddevelopaprocessstructurewhichmeetsfuturerequirements.
IdentifytherequiredprocesschangesandITinvestmentsinhardware/software.
AretailerimplementingVMIwillseethatmanyprocesseshavetobechanged. ThereisaresearchbyReitner
etal.(2012)describingthosechangesindetail.Hereweshowasimplifiedversionoftheirwork.
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Table8.VMIimpactonretailerprocurementprocesses.
(needstobereviewed.Perhapsasimilartableforsuppliersadded)
2.5.2. VMIprocessandEDIdocuments
AprerequisitefortheefficientapplicationofECRprocessmodels istheuseof
the globally defined GS1 standards, which offer a basis for the electronic
interchangeofdatabetweensupplychainpartners.
Also, Electronic Data Interchange (EDI) is a prerequisite for succesful VMI
projects.Fortradedocuments,
there are globally many
standards. ECR Europe
suggests to adopt GS1
EANCOM
standards
for
trade
documents. However, even if
your trade partner uses a
different standard, it should
not be an obstacle. Most
companies are using EDI operators for connectivity, and conversion of
documentformatsisusuallypartofEDIoperatorsserviceoffering.
Table9liststhevariousmessagesusedinVMI,specifieswhethertheyareoptionalormandatoryandalsothe
frequency of transfer. The frequency of EDI document exchange differs for VMI DC (Vendor to Distribution
Center) and VMI DSD (Vendor Direct Store Delivery). All messages have been explained in more detail in
Appendix3.DescriptionofEDImessagesusedinVMI.
Table9.EDImessagesusedinVMIandtheirfrequency
Message Description DCDelivery DSDDelivery
INVRPT InventoryReport daily atleastmonthly*
SLSRPT Salesreport weeklyormonthly daily
ORDER Order optional** optional
DESADV Despatchadvice withSSCCreference whendeliveryoccurs(daily,
weeklyetc.)
RECADV Receiptadvice recommended recommended
INVOIC Invoice withORDERreference withORDERorRECADV
reference,whenagreed
ElectronicDataInterchange(EDI)
isthecomputertocomputer
exchangeoftradedocumentsina
standardelectronic
format
betweenERPsystemsoftrade
partners.
GS1standardscreatea
commonfoundationfor
businessbyuniquely
identifying,accurately
capturingandautomatically
sharingvitalinformation
aboutproducts,locations,
assetsandmore.GS1
identificationstandards
include:
tradeitem(GTIN)
logisticsunit(SSCC)
physicallocation(GLN)
document(GTDI)
asset(GIAI)
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*andalwayswhenstockhasbeentaken**sometimesmandatory,asretailersITsystemrequiresopeninganorderlineinitssystem
CompaniesusingSAPoftenexploitmessage typePROACT (ProductActivity). Thismessagecombines INVRPT
andSLSRPTmessagesand isthereforewellsuitedforVMIneeds.ThefrequencyofexchangeinFMCGshould
beoneday.
Notall
of
listed
message
types
are
required
for
successful
VMI.
For
the
DC
VMI
process,
the
daily
inventory
report (or product activity report) is mandatory. It must indicate additions to stock, usage, goods in transit,
current stock level (date and time) and retailer orders outstanding. Other message types facilitate the
automatedreplenishmentprocess.
EDImessagesandVMIprocess
TheprocessofVMI iscomparedonFigure18tothoseoftraditional(BuyerManaged inventory,BMI)andto
ComanagedInventory(CMI).DependingonmodelchosenVMIorCMI,theprocessandEDIdocumentsused
differssomewhat.InbothVMIandCMIcases,thebuyerforwardssalesandinventorydatatoVendor,whowill
analysethedataandmakeadecisionforreplenishment.
Figure18.ProcessofreplenishmentincaseofBMI,VMIandCMI
1.
BuyerManaged Inventory (BMI). Intraditionalproductreplenishmentprocess, thebuyercalculates
andsendsorder(ORDER)tovendor.Vendorpreparestheorderandshipsit.Withthegoods,despatch
advice (DECADV) document is sent. The buyer accepts the goods with a receipt advice (RECADV)
document.Inidealcase,theinvoiceisbasedonreceivedquantitiessothattheprocessingofinvoiceis
reallyfast.
2.
Vendor
Managed
Inventory
(VMI).
This
revolutionary
concept
turns
the
ordering
process
upsidedown. Thebuyer does notneed toorderanymore, the right andresponsibility is shifted tovendor.
Buyer sends regularly sales and inventory data (SLSRPT and INVRPT). Sometimes those two are
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combined into product activity report (PROACT), especially widespread with SAP users. Vendor
calculates the order based on sales and inventory data, and agreed Min/Max levels, prepares the
orderandships it.Therestoftheprocess issimilartoBMI, ie, in idealcase,therearebothDESADV
and RECADV documents in use, enabling invoices to reflect actually accepted quantities to make
invoiceprocessingefficient.
3.
Co
managed
Inventory
(CMI).
Co
managed
inventory
is
in
between
BMI
and
VMI.
It
is
often
used
in
caseswherebuyer isnotreadytogiveoverthecontrolofreplenishmenttovendor. Insteadof fully
decidingreplenishment,vendorscreateorderproposals(ORDERPROPOSAL)anddonotstartpicking
theorderswithoutwaitingfortheconfirmationfromthebuyer(informofVMIORDER). Therestof
theprocess,onceagain,isthesameasinBMIandVMI.
Insome countries (eg, Switzerland) there is apractice whereproducts in regular assortment arecoveredby
VMIprocess (asdescribedonFigure18)andpromotionalproductsbyCMIprocess (onthesame figure).For
promotionalproducts,thevendorsendsanorderproposal.Basedonthatproposal,thebuyersendstheVMI
orderwiththeexactquantitiesandrespecteddeliverydays.Basedonthisorder,productionisscheduledand
latertheshipmentswillbecombinedwithregularproductsshipments.
AgreeonEDIcommunication
The foundation of a successful VMI program is automated connectivity with your trading partners. The
technological interfacemustbediscussedwithyourtradepartnersandagreed. InVMIcontract(seemore in
chapter2.5),EDIdocuments(andtheirformat)used,transferchannelsandprotocolsmustbespecified(unless
the latter twoarealreadyspecified ingeneral tradeagreementwith thepartner). IncaseanEDIoperator is
used,thisshouldalsobeagreed inthecontract.Theconnectivity iscriticalforenablingpartnercollaboration
andforprovidingthevisibilityneededtomonitorVMIprogramoperationsandresults.
Documentnumberingagreements
Using VMI, orders will no longer originate in buyers system but in suppliers system. This might create a
challenge for the buyer, because corresponding numbers must be set up in its own system for the order
(ORDERS).Itisrecommendedthatspecifically definednumberseriesareusedforthispurpose.
Wherethisisnotpossible,theretailermustgeneratehisownordernumbersonthebasisofareferencetable
andentertheseseparatelyinthereferencetable.RetailerswhoimplementaVMIrelationshipforthefirsttime
arestronglyadvisedtoallocatesufficientresourcestosolvingthisparticularissue.
Toensureasmoothprocess,itisimportantthattheorderisenteredintheretailerswarehousemanagement
system as early as possible. This guarantees that all parties involved in the process are aware of the next
delivery,especiallyinthecaseofoutofstocksituations.
2.5.3. VMItechnologicalsolution
InordertosetupandmaintainaneffectiveVMIprogram,companiesshouldinvestinasupplychainsolution
thatoffers visibility and control across all supply chain links. A good VMIsolution shouldhave the following
features(seeFigure19):
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Figure19.FunctionalityofVMItechnologicalsolution
1. Provide inventory visibility. Enable retailers to share both sales and demand data (forecasts) with
suppliers. Provide near realtime inventory visibility across warehouses, shops, hubs, suppliers, and in
transitinventories.
2. Enable automatic replenishment. Calculate stock balances and create automatic replenishment orders,
takingintoaccounttheagreedMin/Maxlevelsanddeliveryfrequencies.
3. Provideaudittrails.Provideaudittrailsforvisibilityintotransactionhistoryforliabilitymanagementand
disputeresolution.
4. Offerconnectivity (EDI).Offerconnectivityoptionsthatallowpartnerstocommunicatewithmajorityof
theirpartnersfromsophisticatedmultinationalcompaniestosmallenterprises.
5. Monitor and report. Provide exceptionbased configurable alerts, so that all parties are notified of
potential inventory problems. Offer monitoring logs and analytical reports that give an overview of the
inventorymanagement
process.
When choosing a VMI technological solution, there are two options: 1) Integrated VMI/ERP Solution or 2)
StandaloneVMISolution.
Figure20.Positiveandnegativeaspectsofchoosing andintegratedVMIsolution
The integrated VMI/ERP solution has an automated replenishment functionality module that can handle
multipleinventorylocations.OrderprocessinginwarehousemanagementispartoftheERPsystemanddoes
notrequireadditionalinterfaces.TheprosandconsoftheintegratedsolutionarelistedonFigure20.
ThestandaloneVMIsolutionisrecommendedwhentheERPsolutionhasnoautomatedreplenishment
functionsorcannothandlemultiplestocklocations.Therequiredfunctionalityinthatcaseisdeliveredina
standalone
solution.
Order
processing
is
via
interfaces
to
the
ERP
system
and
independent
of
warehouse
management.Theprosandconsoftheintegratedsolutionarelistedon
Changestomasterdataareimmediately
availableforVMIfunctions.
Shorttermsalesfluctuationsare
immediatelyevidentfordemandplanning.
Noseparate
system;
key
users
and
other
usersusethesamesystemforwarehouse
managementandorderprocessing.
Initiallysettingupanewprocessisvery
timeconsuming.
Alongprojectleadtimeisrequiredfor
discussinganymissingandadditional
functionswith
central
IT
teams
in
advance
andinstallingthem.
Higherinitialinvestmentrequired.
INTEGRATEDVMISOLUTION POSITIVEASPECTS NEGATIVEASPECTS
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Figure21.
Figure21.PositiveandnegativeaspectsofchoosingastandaloneVMIsolution
The standalone option can be a pragmatic initial approach, followed by a subsequent switch to integrated
solution.More
issues
to
consider:
Frequencyofassortmentchanges.Ifproductrangesaresubjecttoseasonalchanges(e.g.clothing)or
productsarequicklyreplacedbynewproducts(e.g.computerindustry),anintegratedversionismore
advantageous.
S&OPstructure/integrateddemandplanning.Iftheorganisationisgearedtotightstockmanagement,
it ismandatoryfortheVMIsolutiontobedirectly linkedtothepurchasingorproductionsystem,as
thiswillfacilitateaswiftresponsetoincreaseddemandorsluggishsales.
E2Open: Standalone solutionproviders typically have extensive experience enabling B2B connectivity with
suppliers,andareabletoprovide the relevanttrainingand technologiesneeded togetthemupandrunning
quickly.Asa result, theoverallsolution is lessexpensive to implementandmaintainforbothcompaniesand
their partners. Finally, ondemand solutions allow your organization to shift focus to intercompany
collaboration(acornerstoneofeffectiveVMI)andawayfromprocuring,installing,andmaintaininghardwareandsoftwaresystemsinternally.
2.5.4. SetupandtesttheVMIsolution
The VMI solution should be set up by the VMI project team: representatives from sales and logistics and
togetherwith
the
later
key
users.
Actual
implementation
(technological
realisation)
can
be
completed
in
about
onemonth.
PlantheVMIsolutionsetupintwophases:
1. Test phase provides the opportunity for project members to learn how to handle the new system
parametersforindividualitems.
2. Afterthislearningphase,allitemscanthenbeenteredonthesystemfortheliveenvironment.
Developdatahistory
Uploadatleast12weeksofdatatothemanagementtool.
ManuallysupplementmissingweeksandOOSsituationsinthemanagementtool.
Highlightpromotionalproductsseparately.
TherearemanyVMItoolsproviderstochoosefrom,seeAppendix
Simple,triedandtestedVMItoolscanbe
used(providersarelistedinAppendixII).
Centralisedsupportbythetoolprovider
Favourablelicenceagreement
Toolwillbefurtherdevelopedbythe
provider.Releasecapabilityisguaranteed.
Changesto
master
data
must
be
made
manually/orweeklyuploaded
Shorttermchangesinsalesarenot
automaticallyreflectedinthegeneral
demandplanning.Hence,thereisneedto
exchangedemandfluctuationperiodically
withthefactoryplannerorwiththerelevant
KeyAccountManager.
STANDALONEVMISOLUTION POSITIVEASPECTS NEGATIVEASPECTS
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MapEDImessages,setupEDIconnection
First,makesureyouhaveagreedbothonproductmasterdata
(Min/Max levels, ordering and delivery units) and its
communication(channels,frequency)withyourpartner.
Next, the individual EDI message types must be mapped and
tested.
Many
retailers
have
described
their
VMI
process
in
detail(forexample,seefigurex),thisshouldbeadaptedtothe
companyspecificrequirements.
Backup:Defineanddescribethebackupprocesses.
Finally,thebackupprocessisdocumentedasaprecautionincasetheEDIcommunicationbetweenvendorand
retailer should fail for several days. In this case, the minimum precautionary measure is for stock from the
retailerswarehousetobetransferredtothevendor,forexampleinanExcelfilesentbyemail.Thismakesit
possibleforthevendortocorrectstocklevelsmanually,generatetherelevantorderproposalsandtriggerthe
dailyreplenishmentprocessestopreventanOOSfromoccurringintheretailerswarehouse.
Testing
The VMI system needs to be tested prior to reallife deploy. Sometimes test environments for VMI are
availableinERPsystems(e.g.,SAP).Itisrecommendedthatthelast12weeksofhistorybebuiltuponthebasis
oftheinventoryreport.Thismeansthatvariousaspectsofthenewprocessesaretestedandatthesametime,
anyerrors(e.g.inEDImapping,masterdataortransmissionofincorrectstocklevels)areeliminatedbetween
theparties. Figure22showsasampletestplanforVMIsetup.
Figure22.SampletestplanforVMIsetup
On Figure 22, first test activities, then system availability and tester availability is described. Test activities
includepreparation(determinetestcase,maketestdataavailableandpreparetestscript)andactualtesting.
Carryingoutthetestincludesalsoevalutaionandcorrectionoferrors.Theteststepsare:
Test interface(transferinventoryreport,salesreport,invoices)
Testhistory
Isthehistorybuiltupcorrectlybasedontheinventoryreport?
Thespecificationoftheinformation
exchange:
1.
whichEDIdocuments,
2. whichformats,
3.
whichchannel,
4.
frequency
shouldbeagreedbetweenpartiesin
theirVMIcontract(seechapterY).
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Arestockoutsprocessedaccordingtothesystemsettings
Whathappenswhenquantitiesoninventoryreportarenotreportedinwholenumber?
(onesuggestionistoroundthosedowntonearestinteger)
Testordering/invoicing
Aretheorderproposalscalculatedsensibly?
Does
the
order
proposal
comply
with
the
system
settings
defined
(FTL
or
only
full
pallets)?
Areonlyitemsactuallydeliveredinvoiced?
System and personnel resources availability is shown on the same picture for better overview. Planned
acceptancedatesarecoloredingreenandmarkedwithOK.
2.6.Rollout:PilotandOnboardPartners
2.6.1. PilotyourVMIprogram
ChoosingthecorrectVMIpilotpartnerisofbigimportanceforthesuccessoftheproject.Incaseitgoeswell,
you can use it as a success story to convince your other trade partners to switch to VMI as well. The best
salesargumentisawellworkingpartnership.
Before choosing your pilot VMI partner, you have already sorted all your suppliers into VMIsuitable and
nonVMI suitable suppliers. The main criteria are listed in chapter 2.3.1. Criteria include both the product
range a specific supplier is providing as well as on specifics of the supplier as a company. Additionally, the
relationshipbetweenthecompanies isvery important.Notonlythevolumeoftrade,butalsothequalityof
therelationship.
One
of
the
prerequisites
for
successful
VMI
projects
is
trust.
Besides suitable product range and existing trustful relationship, it is also important to consider technical
questions.Doesyourbusinesspartnerhavetherightskillsandtechnicalbasetoimplementneededchangesto
processes?
Implementation of VMI assumes that both partners have the basic skills relating to and Master Data
Management(readmoreinchapter2.3.4)andElectronicDataInterchange(readmorein2.5.2).Incasethose
skillsaremissing,itisimportantthatthepartnerswillemploythemassoonaspossible.
Coupleofparagraphsmoreneededhere
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2.6.2. Trainandgolive
InvolveKeyUsersandTrain
Afterthetestshavesuccessfullybeencompleted,thekeyusershouldbeinchargeoffurtherimplementation.
Thekey
user
will
then
make
every
effort
to
ensure
that
all
errors
are
eliminated
before
going
live
and
that
the
processes work. It is recommended that the key user and the other users write the user documentation
themselvesandareactivelyinvolvedinthetechnicalacceptanceofthesystem.
This istheonlywaytoensure thattheyacceptthenewmanagementmethodandareproudtotakeonthis
newresponsibility.Aftercompletionof thisphase, thekeyuser is thepersonwhoknowsallsystemsettings
and understands what information is reflected by the relevant mapping. It is high time to celebrate the
achievementstogetherwiththepartner!
Involvementofpeopleandusertraining.ImplementingVMIisacompanywideefforttoredesignandintensify
business processes with supporting technology. Therefore, everyone should be involved and driven by the
same objectives to make this big change in the company (and in the supply chain) successfully work. By
involving key people in the VMI implementation process, employees are given the opportunity to make a
significant
contribution,
and
to
see
the
value
of
VMI
as
the
supply
chain
becomes
transparent.
More
importantly,employeesaremorelikelytounderstandtheirrolesanddevelophighsenseoftaskidentification
(Kuk,2004).
Due to changes in processes, employees need to be trained to be able to act on very different level and in
different context. Purchase people no more need to make orders; instead, they start to interact with their
suppliersonamoremeaningful level,andplan the inventoryandpromotions thatreallydrive thesalesand
business. On supplier side, instead of simple order handling, people now need to obtain the skills of data
analysistobeabletomakerightdecisionsforreplenishment.
Goinglive
The date on which the system goes live must be coordinated with sales and marketing at an early stage to
ensurethat
no
above
average
level
of
activities
is
expected
or
product
range
changes
are
scheduled
on
that
date. If a consignment warehouse is installed at the same time as the VMI is implemented, the accounting
departmentmustalsobeinvolved.Thetakingoverofstockimpactsliquidityandmustthereforebeincludedin
thefinancialplanningasanonrecurringfactor.
In golive phase, good project management is necessary for the switch to work without major delivery
disruption.Adailybriefconferencecallwillensurethatsufficientfocusisplacedontheimplementation andall
participants(andpartiesaffected)areinformedaboutprojectprogress.Thefollowingpreparationsbeforethe
goinglivedateshouldbedone:
Oldstockisliquidatedandthereisaformalprotocolregardingthestockwhichwillbemanagedbythe
vendor
from