VMI ????? A Distribution channel operating system

Introduced in the USA in the early 1990s

System which is sweeping through many areas of retail

System which is practiced between manufacturer or middleman and a retailer

System in which inventory at distributer /retailer is monitored and managed by manufacturer/vendor

System which includes determining appropriate order quantities , managing proper product mix and configuring appropriate safety stock levels

An article by Prof. Prabir Jana carried at Nottingham Trent University , UK An article by Prof. Prabir Jana carried at Nottingham Trent University , UK

VMI Vs (TIM) Traditional inventory management

VMI is typically the opposite of the inventory management approach

VMI works in the reverse to link partners together and to grant authority to the partner who is in the best position to make inventory replenishment decisions.

VMI optimizes supply chain performance

VMI supplier has access to customer’s inventory data

VMI supplier is responsible for maintaining the inventory level required by the customer

The process is to resupply inventory by the vendor via scheduled reviews

VMI overall goal is to support total value chain cost minimization by pushing decision making on replenishment activities furthest up the supply chain.

An article by Prof. Prabir Jana carried at Nottingham Trent University , UK An article by Prof. Prabir Jana carried at Nottingham Trent University , UK

An article by Prof. Prabir Jana carried at Nottingham Trent University , UK An article by Prof. Prabir Jana carried at Nottingham Trent University , UK

VMI Benefits

Reduced inventory

requirements

Reduced costs

Improved

customer

retention

Binding Customers

to Suppliers

Why VMI ???

To reduce/share cost of inventory

To reduce/share space requirement for inventory

To cut down response (procurement) time

To reduce/share uncertainty of type of merchandise

requirement

To reduce/share uncertainty of quantity of

merchandise requirement

An article by Prof. Prabir Jana carried at Nottingham Trent University , UK An article by Prof. Prabir Jana carried at Nottingham Trent University , UK

BENEFITS

Lower inventory investment

(raw and finished)

Better scheduling and planning

Better market information

Closer customer ties and preferred status

Fewer stock-outs withhigher turnover

Better market information

More optimal product mixes

Less inventory in channel(transfer costs)

Lower administrativereplenishment costs

An article by Prof. Prabir Jana carried at Nottingham Trent University , UK An article by Prof. Prabir Jana carried at Nottingham Trent University , UK

MANUFACTURERMANUFACTURER

VMI Vs JIT

An article by Prof. Prabir Jana carried at Nottingham Trent University , UK An article by Prof. Prabir Jana carried at Nottingham Trent University , UK

VMI in Apparel manufacturing

Some of the potential areas of VMI application in apparel manufacturing are procurement of the consumables i.e.

Fabrics

Sewing thread

Sewing needle

Zippers

Sewing machine spare parts

An article by Prof. Prabir Jana carried at Nottingham Trent University , UK An article by Prof. Prabir Jana carried at Nottingham Trent University , UK

An article by Prof. Prabir Jana carried at Nottingham Trent University , UK

For example practicing VMI between needle supplier and apparel manufacturer will have negligible cost and space saving to the manufacturer

VMI is also about accurate prediction of quality and quantity of merchandise by the vendor

While quality of merchandise (type of needle) can be easily predicted (certain), quantity (of needle) is uncertain and needs knowledgeable prediction by the needle vendor

Analysing different areas with VMI parameters

An article by Prof. Prabir Jana carried at Nottingham Trent University , UK

An article by Prof. Prabir Jana carried at Nottingham Trent University , UK

Areas Similarity with retail environment

Disparity with retail environment

Sewing Needle

Like retail sales, companies those follow “break to replace” policy, sewing needle consumption (only quantity) pattern also can’t be predicted accurately

Unlike retail sales the consumption (only type) pattern of sewing needle can be accurately predicted if company follow “fixed-life needle replacement” policy.

Spare parts Like retail sales can’t be predicted with 100% accuracy, spare parts consumption (only quantity) pattern also can’t be predicted accurately for companies with “break to replace” policy.

Unlike retail sales the consumption (only type) pattern of sewing machine parts can be accurately predicted if company follow good preventive maintenance policy

An article by Prof. Prabir Jana carried at Nottingham Trent University , UK

VMI Case Studies in Apparel manufacturing in India

An article by Prof. Prabir Jana carried at Nottingham Trent University , UK

One apparel Manufacturer exporter from Bangalore wanted to experiment VMI concept

The demand pattern (based on production schedule) was shared with thread manufacturer

Thread supplier in consultation with apparel manufacturer calculated actual quantity of thread

In the new concept the onus of surplus or shortage totally went to thread supplier

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Somehow thread quantity calculation was never found to be accurate (with best of effort from both parties),

Resulting thread supplier has to bear the cost of surplus thread

Thread is perishable item so thread manufacturer withdraw from the arrangement

The apparel manufacturer went on to have a risk sharing agreement with another thread supplier

In the new risk sharing agreement

An article by Prof. Prabir Jana carried at Nottingham Trent University , UK

One apparel manufacturer have an JIT (Just In Time) delivery arrangement with a thread supplier

Under this arrangement

Manufacturer block certain quantity of thread Thread inventory is maintained supplier’s premises Thread delivered Just-in-time (Only 8 hrs)

Beyond certain period thread supplier is free to sell to other manufacturer

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By this improvised arrangement

An article by Prof. Prabir Jana carried at Nottingham Trent University , UK

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Analysis

An article by Prof. Prabir Jana carried at Nottingham Trent University , UK

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Conclusion

An article by Prof. Prabir Jana carried at Nottingham Trent University , UK