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  • 1. (VMI) VENDOR MANAGED INVENTORY by Bader Bamegbel Osama Bukhari Abdullah Ja’far
  • 2. What is VMI?
    • A means of optimizing Supply Chain performance in which the manufacturer is responsible for maintaining the distributors inventory levels .
    • The manufacturer has access to the distributor’s inventory data and is responsible for generating purchase orders.
  • 3. Typical business model:
    • The Distributor places an order from the manufacturer.
    • The distributor is in total control of the timing and size of the order being placed.
    • The distributor maintains the inventory plan.
    • Setup and order cost are included.
  • 4. VMI Model:
    • Date ( sales & stock levels) are sent from the distributors to the manufacturer via internet or EDI.
    • The manufacturer can view every item that the distributor carriers as well as true point of sale data .
    • the manufacturer generates the order, not the distributor.
  • 5.  
  • 6. VMI History
    • (VMI) was coined in the USA in the early 1990s.
    • The major projects was being implemented by Wal-Mart, K-Mart and Home Depot.
    • manufacturers began to see it as an effective way of regaining control of their supply chain and reducing the power base of the large retailer.
  • 7. Benefits of VMI
    • Smoother demand.
    • Increasing in sales.
    • Lower inventories and reduced costs to other industries.
    • Planning and ordering cost will decrease due to the responsibility being shifted to the suppliers.
  • 8. Benefits
    • The overall service level is improved by having the right product at the right time.
    • Having the correct item in stock when the end customer needs it, benefits all parties involved.
    • React more quickly to market requirements.
    • Manage new product better.
    • Reducing stock out rate.
  • 9. Implementation of Vendor Managed Inventory
  • 10. Implementation of VMI
    • Agreement between
    • supplier and retailer
    • ( fill rates, frequency of
    • replenishment)
    • Informing about VMI
    • - Employees, inventory and replenishment planners
    • - Strategic management team should understand the concept and be ready to accept the concept of inventory management by a third party
  • 11. Implementation of VMI
    • Data Exchange
    • 1) A one-time exchange of retailer’s sales history (daily/weekly)
    • 2) Ongoing product activity data exchange using EDI.
    • - EDI refers to the
    • computer-to-computer transmission
    • of business information between
    • trading partners
    • - Covering all possible documents exchanged and for all types of products.
  • 12. Implementation of VMI
  • 13. Implementation of VMI
    • Ordering
    • - the vendor calculates the reorder point
    • - The quantity available with retailer is then compared to the calculated reorder quantity level and order quantities are determined
  • 14. Implementation of VMI
    • The created orders will be communicated to
    • the retailer.
    • - Finally, the shipment is sent.
  • 15. Implementation of VMI
    • Invoice Matching
    • Measurement
  • 16. Basic VMI Software
  • 17. Basic VMI Software
    • 1) Homemade
    • - Requires expert in the area of VMI, Inventory Management and a few good programmers
    • - Reflects the uniqueness of your company.
  • 18. Basic VMI Software
    • 2) Pre-Packaged
    • - EDI or Internet based
    • - Sometimes it  can be customized to meet your companies specific needs.
  • 19. Successful example of VMI implementation
  • 20.
    • Wal-Mart and P&G
    • Wal-Mart tired to utilized its capabilities to make more inventory of the most demanded items while reducing the overall inventory.
    • Networked its supplier by computers.
    • Cooperates with Proctor & Gamble (P&G) for maintaining inventory in stores.
    • Built an automated re-order system linking all computers between P&G and its stores and other distribution centers.
  • 21.
    • Wal-Mart and P&G
    • How the collaboration worked
    • The computer system at Wal-Mart stores identified an item which was low in stock and sent a signal to P&G.
    • the system sent a re-supply order to the nearest P&G factory through a satellite communication system.
    • P&G delivered the item either to the Wal-Mart distribution center or directly to the concerned stores.
  • 22.
    • Wal-Mart and P&G
    • Successful proposition for both.
    • Wal-Mart could monitor its stock levels in the stores constantly .
    • identify the items that were moving fast.
    • P&G could also lower its costs.
  • 23. CASE STUDY
  • 24.
    • Point Spring & Draft Shaft Company
    • PSD is a leading distributor of medium and heavy-duty truck parts.
    • In 1997 PSD combined with Brak Drum & Equipment Company to expand their scope of expertise and better service their customers.
    • Out of 5,000 truck parts distributor, PSD was recently recognized by truck parts and service magazine as one of the top five distributors in the United States.
  • 25.
    • The critical component of PSD’s success is to have the right parts available at the right time.
    • Point Spring manager, states, “When we don’t have the right parts on-hand, the process of expediting orders drives our costs up and therefore, reduces our margins and potential profit.“
  • 26.
    • Why PSD used VMI?
    • Using the traditional business systems to manage inventory were sufficient, but they had limitations.
    • Critical inventory activities information was not updated frequently enough to maintain a clear picture of fluctuating customer demand.
    • “ These systems were slow to react which put us in stock-out situations and forced us to expedite orders at substantial increase in costs, in order to maintain our customer service commitments”.
  • 27.
    • PSD’s weak working relationship with suppliers affects its ability to satisfy demand of its customer.
    • PSD found many of the leading companies were using VMI to gain the benefits that it was looking for.
    • research led PSD to Enterprise Data Management and their Datalliance VMI service.
    • VMI was applied in PSD to only some product lines.
  • 28.
    • Results from using VMI
    • helped PSD effectively manage inventory.
    • the appropriate quantity of a specific part in stock, when the customer needs it.
    • Sales in VMI lines increased between 7%-10% with no increase in inventory.
    • VMI helped PSD to decrease inventory carrying and expediting cost.
  • 29.
    • VMI product lines actually increased slightly to 96%.
    • VMI benefits the suppliers in making good forecasts and manufacturing plans due to daily basis customer demands available.
    • "We absolutely value our suppliers that use VMI, and have set an objective to convert our top 15 suppliers to VMI as soon as possible," concludes Ryan.
  • 30. Non successful example of VMI implementation
  • 31.
    • K-Mart Example
    • K-Mart has also cut back its VMI program from more than 300 suppliers down to about 50.
    • vendor departments achieve service levels of 99.5% while maintaining inventory levels at more than 70% below objective.
    • found most manufacturers did not have adequate forecasting.
    • K-Mart's loss of control over the scheduling of shipments was a major factor in trimming the program.
  • 32. The biggest obstacles to VMI
  • 33.
    • Two major obstacles to a successful VMI implementation:
    • Strategic: the concerns most often expressed at the distributor level.
    • Some distributors concerned about letting their private information getting into the hands of their vendors.
    • At the strategic level, a high level decision must be made about how the company wants to position itself.
  • 34.
    • Operational: job functions, processes and performance measurements will all need to change in order to get the most benefit.
    • The sources of resistance are many, but the most common is change.
    • Other issues that interrupt VMI implementation are regarding the management of change and specific job changes.
    • Concerns such as the role of buyers and sales people in the new environment and the new measurement systems must be addressed.
  • 35.
    • Conclusion
    • Although there has been some cases with unsatisfactory results in applying VMI concept, but in general the VMI systems has been highly successful in most experiences.
    • On paper, VMI seems simple to implement, but in the real world of personalities and professional relationships, there are many obstacles to climb.
    • In short, trust is very important for the VMI model to succeed.
  • 36. Questions & Answers