VENDOR MANAGED INVENTORY How to Get the Best Results

VENDOR MANAGEDVENDOR MANAGEDINVENTORYINVENTORY

How to Get the BestHow to Get the Best

ResultsResults

Total Business Consulting Group, Inc.Total Business Consulting Group, Inc. 22

AgendaAgenda

What Is Vendor-Managed What Is Vendor-Managed Inventory (VMI)Inventory (VMI)

ObjectivesObjectives

Working CasesWorking Cases

PreparationPreparation

Information Systems IssuesInformation Systems Issues

Assessment and AgreementAssessment and Agreement

MeasurementsMeasurements


What Is Vendor-Managed Inventory?What Is Vendor-Managed Inventory?

Choose the correct answer:Choose the correct answer:

1.1. Optimizes supply chain performanceOptimizes supply chain performance

2.2. Supplier has access to customer’s inventory Supplier has access to customer’s inventory datadata

3.3. Supplier is responsible for maintaining the Supplier is responsible for maintaining the inventory level required by the customerinventory level required by the customer

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

5.5. All of the above All of the above


Vendor-Managed InventoriesVendor-Managed InventoriesIt has been an It has been an evolution:evolution:– Stock replenishmentStock replenishment

RetailRetail– ConsignmentConsignment– Systems contractsSystems contracts

Standard Standard materialsmaterials

– Scrutinized Scrutinized inventoryinventory

CustomerB

CustomerC

CustomerA

Vendor


ObjectivesObjectivesCustomerCustomer– Reduced inventoryReduced inventory– Reduced operating Reduced operating

costscosts– Total cost reducedTotal cost reduced

Purchasing and Purchasing and administrative costsadministrative costs

Fewer suppliersFewer suppliers– IntangiblesIntangibles

Shorter cycle timeShorter cycle time

Greater customer Greater customer satisfactionsatisfaction

SupplierSupplier– Increased volumeIncreased volume– Forces disciplinesForces disciplines

MeasurementsMeasurements

CommunicationCommunication– Better planning and Better planning and

resource useresource use

Visibility via Visibility via information sharinginformation sharing

– Need to eliminate or Need to eliminate or reduce non-value-reduce non-value-added activitiesadded activities


Working CasesWorking CasesRetailRetail– CorningCorning– Wal-Mart (Quick Response Wal-Mart (Quick Response

Program)Program)

IndustrialIndustrial– Bose (unique planning)Bose (unique planning)– Rohm-Haas (MRO)Rohm-Haas (MRO)– Shamrock Supply Shamrock Supply

(integrator)(integrator)– Shell (unique)Shell (unique)– Contract ManufacturingContract Manufacturing

(various)(various)


Preparation: Questions for Preparation: Questions for Selecting MaterialsSelecting Materials

What are your intentions?What are your intentions?– Reduce workload to concentrate on $$$Reduce workload to concentrate on $$$

What are the critical materials/processes?What are the critical materials/processes?– Need consistency and reliabilityNeed consistency and reliability

Requires closer cooperationRequires closer cooperation

Which items/commodities have attributed to the Which items/commodities have attributed to the greatest delays?greatest delays?

What is important to your company?What is important to your company?


Operational PracticeOperational PracticeConsiderationsConsiderations

Warehousing AlternativesWarehousing Alternatives– Supplier managedSupplier managed

Automatic replenishment (owned or managed)Automatic replenishment (owned or managed)– Best for reasonable degree of predictabilityBest for reasonable degree of predictability– Appropriate directly to point of useAppropriate directly to point of use– Two-bin or eyeball control levels – periodicTwo-bin or eyeball control levels – periodic

Managed on customer siteManaged on customer site– Supplier personnel work as planners on customer Supplier personnel work as planners on customer

behalfbehalf– Works best when customer has a “wide line card”Works best when customer has a “wide line card”– Utilizes customers planning/replenishment systemUtilizes customers planning/replenishment system

BE AWARE OF DATA ACCURACY/MANAGEMENT!!BE AWARE OF DATA ACCURACY/MANAGEMENT!!


Information SystemsInformation SystemsManagementManagement

Sharing Sharing informationinformation– How good are forecasts?How good are forecasts?

Typically poorTypically poor

So what do you do?So what do you do?– Establish a “baseline”Establish a “baseline”

What do we plan for?What do we plan for?– Need to reviewNeed to review

Who takes the lead?Who takes the lead?

How often is this done?How often is this done?– When does this go away?When does this go away?


Information SystemsInformation Systems(continued)(continued)

Reliability of dataReliability of data– Control of activitiesControl of activities

How well do we know How well do we know what’s happening in our what’s happening in our processes?processes?

– Procedures, flows, Procedures, flows, people deploymentpeople deployment

Are we achieving what Are we achieving what is intended?is intended?

– Measurements of Measurements of key areaskey areas

On-hand On-hand inventoryinventoryStock outsStock outs Aging Aging


AssessmentAssessmentProcess statusProcess status– Under control?Under control?– Remember the Remember the

pitfallspitfallsRecord reliabilityRecord reliability

Information sharingInformation sharing

Lacking skill setsLacking skill sets

– What are the What are the results?results?

– What are the What are the corrective actions?corrective actions?


Creating an AgreementCreating an AgreementCritical factorsCritical factors– Identify the itemsIdentify the items– Define the points of Define the points of

operational responsibilityoperational responsibility

Storage, persons, Storage, persons, quality, returns, etc..quality, returns, etc..

Identify and monitor Identify and monitor costscosts

– Develop service level Develop service level measures and note reports measures and note reports to be usedto be used

What are the What are the corrective action steps corrective action steps and timing?and timing?


AgreementAgreement(continued)(continued)

Factors Factors (continued)(continued)– Specify price escalators Specify price escalators

and de-escalator and de-escalator processesprocesses

Price changes Price changes related to business related to business conditionsconditions

– Reference procedures Reference procedures to be usedto be used

– Timing/durationTiming/duration– Periodic auditsPeriodic audits– Termination clause Termination clause


Performance MeasurementsPerformance Measurements

How to ensure VMI will enhance the How to ensure VMI will enhance the business?business?– Establish measures – identify the goalEstablish measures – identify the goal

Starting number of items vs. potentialStarting number of items vs. potential

Inventory $ initially vs. potentialInventory $ initially vs. potential

Total inventory $ at start, during, and afterTotal inventory $ at start, during, and after– Respective inventory turns and days of supply Respective inventory turns and days of supply


MeasurementsMeasurements(continued)(continued)

Operational improvementsOperational improvements– InternalInternal

The number of stock outs and durationThe number of stock outs and duration

Cost of material/service before and afterCost of material/service before and after

– ExternalExternalCustomer satisfactionCustomer satisfaction

– Improvement of delivery availabilityImprovement of delivery availability– Other points as defined by the partiesOther points as defined by the parties

Competitive advantage considerationsCompetitive advantage considerations


What’s Next?What’s Next?SuccessSuccess– Three “Es”Three “Es”

ExecutionExecutionEnergyEnergyExcitementExcitement

– Pilot then expandPilot then expandSuccess breeds desireSuccess breeds desire

– Measure and adjustMeasure and adjust

THERE ISN’T ANY THERE ISN’T ANY LUCK, JUST THE LUCK, JUST THE OPPORTUNITY TO OPPORTUNITY TO SUCCEEDSUCCEED

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VENDOR MANAGED INVENTORY How to Get the Best Results