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Transcript of Ascm - Final
8/23/2019 Ascm - Final
http://slidepdf.com/reader/full/ascm-final 1/43
Vendor Managed Inventory
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During thisprocess thesupplier isguided by
mutually agreedto objectives for
inventorylevels, fill ratesand transaction
costs.
There are twoEDI transactions
at the heart ofthe process.
VMI is a process where the supplier generates orders for the customerbased on demand information sent by the customer.
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Determining appropriate order quantities
Managing proper product mixes
Configuring appropriate safety stock
Why VMI?
Global supply chains complex compared to domesticones
Reduction in inventory carrying costs Fewer supply chain professionals
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Supply Chain level: Lower inventory levels at total supply chain level.
Less overhead.
Increased sales.
Reduces human data entry errors.
End-users:
Increased service level.
Reduced stock outs.
IncreasedSales
Lower
Administrative Costs
Lower
supplierinventory
LowerCustomerInventorie
s
ReducesBull-Whip
Effect
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Suppliers:
Reduced replenishment times and lower inventory costs.
Increased sales through reduced stock outs.
Less redundancy.
Build strategic strengths through establishing strong supply chainrelationships.
Vendor assistance with category management.
Vendors:
Better insight in customer demand (better resource usage, reduced rawand finished goods inventories).
Improved, more direct communication with customers. Improved marketanalysis.
Increased sales via lower out of stock rates.
Opportunity to provide category management and other value-addedservices.
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Manufacturers: Lower inventory investments (raw and finished) Better scheduling and planning Better market information
Closer customer ties and preferred status
Retailers: Fewer stock-out with higher inventory turnover
Better market information More optimal product mix Less inventory in channels (transfer costs) Lower administrative replenishment costs
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Success of VMI initiative depends on the strength ofrelationship between the vendors and retailers.
Increased dependency between the parties andincreased switching costs.
Lack of trust to exchange data can result in theineffective implementation in one or more of thefollowing forms:
Inventory invisibility.
Inventory imbalance.
Costs of technology and changing organization.
Extensive data- and EDI testing is needed.
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Special promotions or events need to be communicatedbeforehand to avoid replenishment planning mistakes(loss of flexibility).
Increased vulnerability for non-foreseeable risks such asemployee strikes, hurricanes, etc. due to lower inventorylevels.
Most of the benefits are for the end client and for the
selling party, while the vendor does much of the work.
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Phenomenon observed in forecast driven distributionchannels Is basically the amplification of the demand variance
up the supply chain, from customer to factory , asdemand information passes back through the supplychain.
Issues: Excess Inventories Quality Problems
Increased Raw Material Costs Increased Shipping Costs Lost Sales Lost Customer Service
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Company X produces widgets for sale on the openmarket
Customer demand for Company X’s widgets becomestagnant
Retailers offer a sale promotion to boost sales ofCompany X widgets
Retailers fail to notify manufacturers of sales promotion
Company X assumes that the demand for widgets has
increased Company X increases inventory to allow for increased
manufacturing of widgets
Company X notifies part suppliers of increased demand
Suppliers increase inventory to meet demand
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Distorted information along the supply chain causedthe inventory levels to increase along the supply chain
which may result in increased inventory costs, poorcustomer service, adjusted capacity and other problemswhich are associated with the Bullwhip Effect
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Demand Forecast Updating
Rationing Gaming
Order Batching Price Variations
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Given customer demand and stock levels, supplierscan automatically replenish a trading partner’sinventory without the need for approved purchaseorders
3 Primary Dimensions of VMI Implementation
Information Technology
Process Redesign Organizational Support
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Information Technology Global VMI : A tool for effective supply chain
management
Sole use for replenishment decisions
Investment in IT to enable supply chain visibility Use of Global VMI for real time supply chain integration
Process Redesign
Change in roles and responsibilities of personnel Investment in redesigning the supply chain to link more
effectively with suppliers/customers
Modification of supply chain activities (eg: Purchasing,order fulfillment process etc) during and after Global VMI
application
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Organizational Support Strategic Imperative : Optimization of supply chain
performance and achieving competitive advantage
Management and Organizational Support : Supportfrom Purchasing/Sales Dept, IT Support and Topmanagement support
Supplier and Customer Relationship : Satisfyingmutual needs, Cross investment on major projects,Cross organizational team to manage replenishment,Negotiating service levels and inventory targets
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1. Maximize sharing and integration of data2. Aggressively invest in ICT to enable supply chain
visibility and real time integration of supply chain
3. Select, design and implement VMI applications that
are congruent with company’s business processes 4. Redesign supply chain processes to align with
customers/suppliers
5. Redefine roles and responsibilities of personnel
6. Obtain senior management and organizational support
7. Charge a cross functional team with responsibility tobuild trust and manage connected activities with otherpartners
8. Be proactive
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e-grocers go out to conquer market shares withessentially only one service - home delivery ofordered goods, as their competitive weapon.
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E-grocery currently caters to only the Shopping avoiders,necessity users, new technologists. It does not attract thetime starved, responsible and traditional shoppers.
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The current competitive advantage of e-grocerswould be nullified if the traditional grocersstarted home delivery of goods.
The electronic communication channel betweenthe e-grocers and the customers is not fullyexploited and is currently used only for datatransfer.
Availability of technologies like bar code and
RFID
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Value Proposition:
e-grocer takes responsibility for its customers'product availability.
E-grocer would be able to create real, concretevalue as most people do not really enjoyordering the same basic products day after daybut merely want their households to beequipped with what they need when they need
it.
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1) Data Capture
2) Data transfer
3) Data Management
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The data communication infrastructure hasalready been created by the e-grocers when theystarted using data transfer over the Internet as ameans for displaying product information as well
as receiving orders. The inventory management component can be
created along the principles of applicationservices that are now launched to small
businesses. The big issue is to come up with a good solution
to the data capture problem
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Profiles based on buying habits
Data capture in the household
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What does it mean?
The e-grocer can create customer profiles thatreflect the individual buying habits of thesecustomers. The profiles can then be used in
order to predict each customer's future needs. Advantage:
Technology needed for gathering dataalready exists.
Problem:Uncertainty is inherent in a system that reliessolely on predicting the future based onhistorical data
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Alternatives:
1) Flow control based data capture – Data on a material floware collected
2) Inventory count based data capture - Data on themomentary inventory situation are regularly collected
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Requires active customer participation as he needs tonotify the data capture system each time an item isadded to removed from the inventory system.
Easy to implement as only an Internet connection and a
bar code reader are needed.E.g – Refrigerator equipped with Internet connectionand a bar code reader.
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The reader device performs an inventory count by
regularly scanning what items are currently storedin, for example, the customer's refrigerator. The inventory data obtained are then sent over the
Internet to the e-grocer. Next, the database entries corresponding to this
customer's inventory are updated. The e-grocer'sinventory management system checks if thecustomer is running low on any of the items.
When needed, the system schedulesreplenishments to the customer.
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Challenges for use of RFID:
Technology availability
Cost effectiveness
Possible Solution:Re-progammable recyclable tags.
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Variety
Large Package Sizes
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Customer
No need to remember what and when to order
E-grocers Competitive advantage over traditional grocers
Increased customer loyalty
More stable demand
More knowledge about the customers
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Existing model suits only continuous demand
More research is also required in order todiscover what new value offerings will be neededfor the e-grocers to be able to offer also different
kinds of demand more efficiently.
A ``plan and forget'' calendar based servicecould, for example, be the answer to occasionaldemand and a ``capture and enjoy'' service a
way to capture impulsive, irregular demand.
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Vendor Managed Inventory (VMI) is designed tofacilitate transfer of information through aninformation system and to provide major cost savingbenefits to both suppliers and retailers customers.
As part of the program-
The retailer supplies the vendor with theinformation necessary to maintain just enoughmerchandise to meet customer demand.
This enable the supplier to better project andanticipate the amount of product it needs to produceor supply.
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VMI is a backward replenishment model where thesupplier does the demand creation and demandfulfilment.
Instead of the customer managing his inventory and
deciding how much to fulfil and when, the supplierdoes.
With information available at a more detailed level, itallows the manufacturer to be more customer-specific
in it’s planning. VMI concepts are being applied at both the distribution
center-level and the store-level.
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The retailer and the supplier must establish clearguidelines on inventory levels and fill rates.
The VMI process involves exchange of critical andsensitive information between retailer and supplier.
If this data is not shared or not accurate as per theestablished guidelines, it will have severe impact onthe overall success of the VMI process.
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Management Commitment and Buy-in from Inventory Staff Employees should be given a complete overview of VMI Objectives of this process should be communicated to the organization The support of inventory analysts, e-business analysts and
replenishment planners are very essential for the success of this program.
Data Synchronization and EDI Set Up The product data and other catalogue information should match
between retailer and vendor. Product data should be audited and differences with respect to same
should be resolved. Process for communicating the product data changes should be
established. Ensure that the vendors are setup in EDI system.
Setting up the Agreements Agreements on inventory turns, fill rates, frequency of replenishment
and SLAs should be predetermined.
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Data Exchange Two types of data exchange occur One is a one-time exchange of retailer’s sales history that allows the
supplier to base the inventory. The second type is ongoing product activity data exchange.
Ordering The vendor calculates the reorder point (ROP) for each item based on
the movement of data and any overriding guidelines established. The VMI customers generally receive priority service for
replenishment.
Invoice Matching
Measurement The parameters used to measure success of VMI are improvements in
inventory turn over, stock availability, inventory reduction anddistribution.
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Successful implementation of VMI often depends oncomputer platforms and communication technologyboth at the retailer and supplier end
Electronic data interchange (EDI) is an enabler, but not
a requirement for VMI.
Uniform Communication Stds. defined by UniformCode Council
UCS 852: Warehouse withdrawal and inventory
information
UCS 855: Supplier replenishment decisions
UCS 856: Advance shipment data
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The Impact of Vendor Managed Inventory on the Bullwhip Effect inSupply Chains by Allan Neves Portes & Guilherme Ernani Vieira
http://en.wikipedia.org/wiki/Bullwhip_effect
“Enhancing Business Performance via Vendor Managed InventoryApplications” by Peter Duchessi and Indushobha Chengalur-Smith
“Use VMI to improve forecasting” by Larry Lapide, PhD, The Journal ofBusiness Forecasting at MIT
“Vendor Managed Inventory” by Rajiv Saxena, VP of global supply chainengineering at APL Logistics
“What is VMI? “, Carl Hall, Enterprise Data Management, Inc. Copyright
2001. VMI: Very Mixed Impact, James Aaron Cooke, Senior Technology Editor,
Logisticsmanagement.com
http://www.12manage.com/methods_vendor_managed_inventory.html
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Thank You