Procurement Breakout – Omar Nadi, Elemica: “VMI: Building a Foundation to Drive Working Capital Savings”
1. VMI: Building a Demand Driven
Program to Drive Working
Capital Savings
October 2014
2. Agenda
• Elemica
SCON
• VMI
Defined
• Benefits
of
VMI
• VMI
Program
Best
Prac<ces
• Crea<ng
a
founda<on
for
supplier
management
success
• Using
segmenta<on
to
target
the
right
suppliers
• Change
management
&
driving
a
win/win
3. Elemica Supply Chain
Operating Network
Universal Transaction ModelUBC’s UBD’s
Supplier Mgmt.
Sourcing Mgmt.
Logistics Mgmt.
Customer Mgmt.
Master Data Mgmt.
Business Rules
3rd Party API
Partner Connectivity Re-Usable Implementation
Bundles
Transaction Dashboard
Discovery Process Control Tower
Benchmarks
Predictive Analytics
Network
Algorithms
4. Supplier Management
Supplier
1
Supplier
2
Supplier
3
Supplier
4
Supplier
5
Supplier
6
Supplier
7
Supplier
1000
Buyer
QuickLinkTM
Network
One
Buyer
managing
many
suppliers
With
Elemica
Manage
your
supplier
network
with
one
connec<on
Manage
your
ordering
processes
with
one
solu<on
Purchase
Order
Management
Delivery
Forecast
Invoice
Management
Cer<ficate
of
Analysis
(CoA)
Vendor
Managed
Inventory
Global
Supply
Management
SmartLinkTM
Applica<ons
6. What is VMI?
VMI or VMOI (vendor managed and owned inventory) is a
collaboratively managed order replenishment solution providing your
suppliers the tools to create optimized delivery schedules through
shared visibility into your forecast and inventory levels.
Common
Acronyms
VMI
–
Vendor
Managed
Inventory
VM(O)I
–
Vendor
Managed
&
Owned
Inventory
SMI
–
Supplier
Managed
Inventory
CRP
–
Con8nuous
Replenishment
Planning
CPFR
–
Collabora8ve
Planning
Forecas8ng
&
Repleishment
7. What is VMI?
Supply
Plan/
Order
Commitment
Inventory
&
Forecast
Plan
Advance
Ship
No<ce
Delivery
Receipt
Fill
Cer<ficate
of
Analysis
Invoice
Payment
Advice
Pay
ERS/Pay
on
Receipt
Buyer
Book
Delivery
Slot
Supplier
End
to
End
Integra<on
Business
Rules
Engine
Business
Process
Workflow
Inventory
Projec<on
and
Planning
Algorithm
Report,
No<fica<on,
and
Alert
Genera<on
Invoice
Status
9. The
Chief
Supply
Chain
Officer
Report
2013
–
SCM
World
Strong
Supplier
Rela8onships
listed
as
second
most
important
value
contributor
Why VMI?
Unlocking
Working
Capital
Best
Prac<ces
for
Reducing
Inventory
–
Aberdeen
Inventory
Misconcep<ons:
Using
purchase
orders
or
release
no<ces
for
replenishment
is
efficient
A
growing
number
of
companies
that
used
to
cut
purchase
orders
or
release
no8ces
for
their
suppliers
are
discovering
it
is
more
effec8ve
to
ask
suppliers
to
take
responsibility
for
maintaining
inventory
between
min/max
levels.
The
Resurgence
of
Vendor-‐Managed
Inventory
–
AMR
The
Boaom
Line:
We
are
in
an
era
where
effec8ve
vendor-‐managed
inventory
approaches
may
be
necessary
for
survival.
B2B
Collabora<on
No
Longer
Op<onal
–
Aberdeen
The
top
priori8es
for
leaders
are
collabora8on
with
suppliers
and
customers.
The
likelihood
is
72%
greater
for
the
leaders
than
the
followers
to
collaborate
with
suppliers.
10. Why VMI?
Automa<on
• Reduce
processing
costs
• Free
up
human
capital
• Cut
over8me
&
rush
shipments
• Improve
opera8onal
planning
• Increase
perfect
orders
and
reduce
points
of
interven8on
• Capture
early
payment
discounts
• Manage
by
excep8on
A
large
North
American-‐based
chemicals
enterprise…before
implementa8on
of
a
supplier
network,
the
average
processing
cost
hovered
around
the
$20
mark.
ASer
the
supplier
network
was
in
place,
processing
costs
dipped
nearly
75%.
–
Aberdeen
Collabora<on
• Increase
forecast
and
planning
accuracy
• Reduce
safety
stock
• Improve
upstream
planning
by
giving
suppliers
real
8me
visibility
into
opera8ons
• Reduce
shortages
and
stock
outs
• Reduce
transporta8on
costs
• Build
closer
rela8onships
with
partners
• Provide
an
incen8ve
for
consignment
$1.5B
–
Annual
Raw
Material
Spend
30%
-‐
Managed
in
VMI
15%
-‐
Managed
in
VM(O)I
5
–
Days
of
Inventory
Reduc8on
$32M
–
Working
capital
reduc8on
-‐
consignment
$7M
–
Working
capital
reduc8on
from
inventory
turnover
improvement
$2.4M
–
Annual
Cost
of
Capital
Avoidance
@
6%
Best
in
Class
Automated
All
Others
Manual
Percent
Improvement
Purchase
Order
$4.13
$16.94
76%
Order
Response
$0.50
$8.70
94%
Ship
No<ce
$1.50
$12.46
88%
Invoice
$3.67
$17.77
79%
Total
$9.80
$55.87
82%
B2B
Integra<on
and
Collabora<on:
Strategies
for
Building
an
ROI
Business
Case
-‐
Aberdeen
12. Purchase
Order
Management
DELFOR
Invoice
Management
CoA
Procurement
Execu<on
§ Automate
standard
business
processes
§ Start
change
management
effort
§ Build
partner
network
§ Capture
automa8on
savings
§ Build
B2B
program
momentum
Supplier Management
Foundation
Elemica
Recommended
Supplier
Management
Roadmap
Vendor
Managed
Inventory
Global
Supply
Management
Slot
Booking
Process
Collabora<on
§ Modernize
business
processes
§ Collaborate
with
suppliers
§ Gain
visibility
into
extended
supply
chain
§ Reduce
transporta8on
costs
§ Focus
on
value
add
ac8vi8es
§ Reduce
working
capital
13. Purchase
Order
Management
DELFOR
Invoice
Management
CoA
Procurement
Execu<on
Year
1
-‐
2
§ Build
out
standard
ordering
process
§ 50%
of
direct
material
spend
automated
(Purchase
Order
Management
&
Invoice)
Supplier Management
Foundation
Elemica
Recommended
Supplier
Management
Roadmap
Vendor
Managed
Inventory
Global
Supply
Management
Slot
Booking
Process
Collabora<on
Year
3
§ 40%
of
raw
material
spend
in
VMI
§ 10%
of
raw
material
spend
in
VM(O)I
14. Boaleneck
Supply
Segmentation is key
Strategic
Supply
Leverage
Supply
Rou<ne
Supply
Supplier
Segments
Profit
Impact
Star<ng
programs
with
the
right
suppliers
is
cri<cal
to
success
Kraljic
Porholio
Model
-‐
Segmenta<on
around
Sourcing
Strategy
High
Low
Low
High
Supply
Risk
15. Boaleneck
Supply
Segmentation is key
Strategic
Supply
Leverage
Supply
Rou<ne
Supply
Supplier
Segments
Profit
Impact
Procurement
Execu<on
Process
for
Strategic
Segment
High
Low
Low
High
Supply
Risk
Strategic
Supply
16. POM
How to make VMI work
POM
VMI
VMI
Strategic
Suppliers
Value/Volume
Procurement
Execu<on
Process
for
Strategic
Segment
High
Low
Low
High
Transporta<on
Risk
Strategic
Supply
Category
Volume
Value
Transporta<on
Time
Sourcing
Strategy
Steady
Consump<on
Internal
abili<es
Leverage
Familiarity
VM(O)I
Factors
17. Change mgt & driving a win/
win
• “Accurate
and
transparent
data
is
essen8al”
• Forecast
data
• Delivery
data
• Inventory
data
• Change
management
• Organize
–
Align
internally
• Execu8ve
sponsorship
• Comprehensive
team
(commercial,
mat
mgt,
plants,
trans.)
• Educa8on
of
stakeholders
• Commit
–
Create
a
culture
• Make
automa8on
the
rule
• Centers
of
excellence
• Measure
&
Review
• Supplier
management
is
con8nuous
improvement
• CoE
review
sessions
to
direct
resources
toward
capturing
ROI