Continuous replenishment and vendor managed inventory


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Continuous replenishment and vendor managed inventory

  1. 1. Continuous Replenishment Programme (CRP) GOALS: Focus on efficient replenishment of  Increase inventory turnsproducts  Reduce inventory levels Part of Efficient Consumer  Decrease stock-outsResponse (ECR) arena  Improve customer service Improving the flow of products in levels  Boost warehouse efficiencythe supply chain  Enhance trading partners perception of value Vendor Managed Inventory (VMI) Manufacturer decides when to OBJECTIVES:replenish Increase in-stock inventory Usage of automatic electronic Increase salesmessages Improve customer service VMI implementation in industries Increase gross marginslike, department Reduce overall inventory instores, apparel, automotive and the supply chainpaper manufacturing Stabilize vendors production
  2. 2. Vendor Managed Inventory (VMI) modelFrom the suppliers perspective, a VMI model generally entails:1. Receiving stock levels from a customer2. Receiving sales forecasts from a customer3. Generating replenishment orders when needed4. Sending dispatch advice to a customer5. Receiving sales reports from a customer6. Sending invoices to a customer. Fig. A two stage VMI supply chain
  3. 3. Information FlowInventory levels – From distributor to Sales history – From distributor tomanufacturer manufacturer The current stock quantity The quantity sold over the last The quantity in order period The quantity reserved for some The number of sold linescustomer orders Forecasts can also be provided The backorder quantity (stock out) by the distributorOrder proposal – Frommanufacturer to distributorThe Ship To location The order quantity Manufacturer Inventory Level Distributor Final Sales history Customers Order Proposal Final Purchase Order Customer Order need Acknowledgement Delivery
  4. 4. BenefitsSupplier benefits: Visibility to the customers point-of-sale data simplifies forecasting. Promotions can be more easily incorporated into the inventory plan. Customer ordering errors are reduced. Stock level visibility helps identify priorities (replenish stock versus a stockout). The supplier can see the potential need for an item before the item is ordered.Customer benefits: Fill rates from the supplier, and to the end consumer, improve. Stockouts and inventory levels often decrease. Planning and ordering costs decrease since the responsibility is on supplier. Overall service level is improved by having the right product at the right time. The supplier is more focused than ever on providing superior service.Dual benefits: Data entry errors are reduced due to computer-to-computer communications. Overall processing speed is improved. Both parties strive to offer better service to the end consumer. A true collaborative partnership is formed between the supplier and thecustomer
  5. 5. VMI implementation for aGlobal Energy ManagementSpecialist
  6. 6. Mission •Help our customers to achieve more while using less of our common planet •Safe Goals •Reliable •Efficient •ProductiveBusiness •Power and Control •Energy Management
  7. 7. • Common goal to improve services to end- customerDual Benefits • Partnership leading to strong and long-term ties between distributor and manufacturer Distributor • Decrease in stock-outs and inventory levels Benefits • Reduction in planning and ordering cost • Visibility of the Distributor’s Sales data makes forecasting easierManufacturers • Promotions can be more easily incorporated Benefits into the inventory plan. • A reduction in Distributor ordering errors
  8. 8. Inventory Sales Order levels history proposal Daily Monthly Daily or set days of a Current stock week quantity Quantity sold over the last period Quantity in order References and the Number of sold lines Quantities for Quantity reserved ordering • The Ship-to-location Forecasts fromBackorder quantity • The order quantity Distributor
  9. 9. The savings identified at the beginning of the project were metWith a comparable level of product availability the stock coverage stronglyreducedRight products were put on the shelves of the distributor leading to better productturn-overClear workload reduction was visibleDue to improvement in forecasting it was then acceptable to update the stockparameters every two months instead of every month.The reduction of training needs was also very clear
  10. 10. VMI implementation for aGlobal Energy ManagementSpecialist
  11. 11. World’s largest manufacturer of heavy-duty diesel enginesSupplies the entire Volvo group with driveline componentsEmployees approximately 8000 peopleOperations in Sweden, France, Brazil and USProduction is Customer basedIdentified VMI is an efficient tool to lower inventory level and improverelationship with its suppliers
  12. 12. Pipechain VMI software was employedCover days of stock lowered from seven days to three daysInventory reduction of 67 percentageReduced administration costsHigh supplier satisfactionDecrease in set-up time
  13. 13. VMI implementation for aGlobal Energy ManagementSpecialist
  14. 14. Part of Orkla GroupNordic region’s leading supplier of manufactured food productsfor grocery tradeAnnual turnover over 3 billion SEK1500 EmployeesHeadquartered at Eslov, Sweden
  15. 15. Service levels have gone up from 94% to 98%Inventory Level has been decreased by 30%Order processing cost has declined by 40% throughout supplychainMore efficient production planningEasier for co-planning and optimizing set-up times
  16. 16. With cases from the Indianmarket
  17. 17.  A step beyond just-in-time (JIT) in the manufacturing scenario Consumables procurement  practicing VMI between the needle supplier and apparel manufacturer will result in negligible cost and space savings for the manufacturer Accurate prediction by the vendor of merchandise quality and quantity  A sewing thread supplier can decide on the type of thread and calculate fairly accurately the quantity required based on the fabric swatch and apparel sample
  18. 18. Challenge • Controlling sewing thread inventories • The manufacturer alone would calculate and order Pre VMI the total quantity of thread, with any surplus or Process shortage being the manufacturers problem • The onus of any surplus or shortage was shifted totally toStrategy the thread supplier • The demand pattern (based on the production schedule) was shared with the thread supplier • Barring some standard colour like white or black, thread is a perishable item so the thread supplier Result withdrew from the arrangement • Under the new risk sharing arrangement the cost of dispute/surplus quantity of thread is being shared by both the thread supplier and apparel manufacturer
  19. 19.  The manufacturer blocks certain quantities of thread with the thread supplier, The thread supplier avoids who then maintains the complicated reverse entry of thread inventory and goods if there is a surplus delivers products just-in-  The manufacturer avoids time when required by the being left with surplus manufacturer stock, while guaranteeing Blocking thread quantities is against out of stock only valid for a certain period of time, after which  The responsibility for the thread supplier is free to calculating the correct sell the thread to other quantity still remains with the manufacturers manufacturer Geographical proximity between both companies
  20. 20.  Products like zippers and needles were also explored but manufacturers felt these were too insignificant to experiment with While exploring similar arrangements with sewing machine spare parts suppliers in India it was found that similar practices are being exercised with a few large apparel manufacturers for selected high priced machines.
  21. 21.  Absence of large apparel manufacturers, the driver of VMI implementation There is an absence of major machine manufacturers According to Professor Sunil Chopra, VMI should only be implemented in cases where the manufacturer/vendor can forecast demand more accurately than the distributor/retailer VMI presupposes EDI between the trading partners, since an absence of the EDI infrastructure will make the "time gain" factor difficult to appreciate (and convert to a cost advantage) by partners The emphasis is on the relationship, and the software merely automates the demand analysis. The sales tax and other procedural complexities may need to be simplified if there is to be a smooth flow of material and information between partners
  22. 22. Some examples ofcompanies which chose toimplement VMI
  23. 23. K-Mart Fred Mayer Walmart and P&G•Customer service •Reduced inventories •Have had a VMI measures have gone 30-40 per cent program together for from the high 80s to the •Service levels increased over ten years to high 90s to 98 per cent manage the inventory•Inventory turns on •VMI implemented with and production of seasonal items have two key food vendors disposable gone from 3 to diapers, with great between 10 and success 11, and for non- •Turnover doubled seasonal items from 12- •Wal-Marts operating 15 to 17-20 costs fell •P&Gs market share grew (because Wal- Mart gave it preferred shelf space)
  24. 24. How to measure success of aVMI implementationWhat are the major challengesin implementing the VMIWhat are the possible pitfalls inimplementing the VMI