Vendor Managed Inventories

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VENDOR MANAGED INVENTORIES

Supply Chain Management

Assignment 1 ± Reading 5May 17, 2004



THE WAY FORWARD ««.- TEAM

Manoj Sekhar ± Zaheer Ahmed

Biju ± Deepthi S ±

Sara Brito - 2532396



W hat is VMI ?

± Vendor Managed InventoryA Distribution Channel Operating System

P urpose of VMI ? ± A system by which a Mfg/Vendor

Monitors & Manages the inventory of Distributor/Retailer

THE WAY FORWARD ««.



T actical Activities of VMI

± Determining appropriate order quantities ± Managing P roper P roduct Mixes ± Configuring appropriate safety stock levels




VMI Rationale

± Decision making responsibility is pushed up thesupply chain, to enable the mfg/vendor to better support the objectives of the entire integratedsupply chain

Resulting in sustainable competitive advantageCentralizing the replenishment decision thus helpingreduce distortions in ordering


VMI Allows information to be used more intelligently



P rimary Mechanisms of VMI ± Strategic Element

L ess time on physical inventory countsL ess time finding misdirected inventoryL ess time entering data into large customised systems

± T echnological CompetencyCross-docking, Advance Shipping notices, barcoding and other electronic enhancementsElectronic Data Interchange (EDI)P oint of Sales ( P OS) and inventory information retained byDist/Retailer


VMI Allows information to be used more intelligently




Retailer Inventory L evels&

Sales History

Vendor

Retailer

Retailer W HSE/Store

1. P roduct data exchange ± EDI 852

2a. P O(P urchase Order) ± EDI 8502b. ASN(After Shipment Notice) ± EDI 8562c. Invoice EDI 810

3a. Retailer received ± EDI 8613b. P ayment Advice ± EDI 820

P RODUC T



Challenges for Implementing VMI ± Systems / Data limitations

Broad Range (Configuration, Operational, P rocedural issues) ± Narrow the Focus

± P rocess & Conceptual Concerns of the P ilot P rogramP re-conceived beliefs of Distributors/Retailers that they canmanage its inventory better than the vendorsL imitations of existing computer system

± Initiate improvement goals for vendors involved in the pilot program




Challenges for Implementing VMI ± Redefining the relationship with the vendor ± Handing over previously considered proprietary

information ± Handing over new processes & tasks

± Setting up new metrics for measuring thevendor¶s performance

± Setting up establishing electronic connections


VMI ± Moving the organization in the right strategic direction



Benefits from VMI ± Better Forecasting

L owered Investment in the Supply Chain ± L ess Overstocking

J IT Delivery ± Greater Inventory T urnover ± Improved Customer Service

Fewer stockoutsOptimal P roduct Mixes

± Ordering Raw Materials EfficientlySchedule P roductionT ransportation

± Develop Closer T ies with CustomersObserving End-User ConsumptionObserving General Market T rends




THE WAY FORWARD ««.Benefits to Mfg/Vend ± L ower Inventory

investment (Raw &Finished)

± Better Scheduling &P lanning

± Better Market Information ± Closer Customer T ies &

preferred status

Benefits to Dist/Ret. ± Fewer stock-outs with

higher turnover ± Better market information ± More optimal product

mixes ± L ess inventory in channel

(transfer costs) ± L ower administrative

replenishment costs



Customers P atronizing VMI ± K-Mart ± ACE Hardware ± Fred Meyer ± Grand Union ± Oshawa Foods ± P anduit




T he Strategic Approach ± Focus Your Efforts ± T rust & P artnership between Supply Chain

Stakeholders ± Highly Effective Computer Systems

± Competent Mfg/Vends and the Ability toForecast

± W illing Stakeholder P artners & P atience


VMI ± cannot be set overnight



VMI¶s P roblems ± Complex Questions

Is solid & comprehensive data ( P OS) available?

Does the Mfg/Vendor have the capabilities in the area of forecasting or retail inventory management ?

± Does the Mfg/Vendor understand¶;T he true nature of P OS data?How the Dist/Ret is using the stock that is ordered?

How long the units were inventoried?W hether they were special orders?If they were ordered just to create full truck loads?T he number of end users the units were going to?




VMI¶s P roblems ± Complex Questions

How flexible will the system be in the event of required changes &modifications - to have the ability to forecast accurately based on?

± P romotions? ± Seasonal Variations? ± New P roduct Introductions? ± Selling incentives?

W hat percent of their total volume do the VMI vendors sell throughthe distributor / retailer?W ill there be minimum volume or exclusivity requirements? W hat

product items are being considered ? ± For what type of P roducts VMI will or will not work?

Can Mfg/Vendors and Dist/Ret. Align themselves to seek long term profitability ?

± Mfg/Vendors want to maximize inventory

± Dist/Retailers want to minimize inventory




Outlook And Future Of VMI ± Acceleration of trends towards¶;

Cycle T ime CompressionReduced inventoryIncreased inventory velocityGreater use of EDIInformation T ech. & SCM will affect the future growth &

development of L

ogistics ± P ooling of Shipments as a L ogistics Strategy ± Closer Attention to Supply Chain Management ± VMI programs will grow substantially in the near

future




Conceptual Evolution of InventoryManagement


Owner Managed

Inventory

ContinuousReplenishment

CR

VMIConsignment

Selling

CS

DirectSelling



Recommendations ± VMI should not be viewed solely as a cost

reduction method for one of the players in thesupply chain

± It should be viewed as a tool to successfullyManage the W hole Supply ChainReduce CostsP rovide Greater Value to the Consumer Spread Savings to All P articipants




Conclusions ± By Forming alliances with partners early, long

term viability is greatly enhanced with futureuses of T echnology including Internet

± ³ T ailored L ogistics Strategy´ ( TL S)incorporates only the tenets of VMI/EDI thatapply to an organizations unique needs

TL S approach will increase the probability of success with VMI programs and relatedimprovement techniques


VMI will not dominate all logistics thought & practice




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Vendor Managed Inventories