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Proprietary and confidential. 2008 Perot Systems. All rights reserved. All trademarks are the property of their respective owners.www.perotsystems.com

People. Processes. Technology. Results.

1

Improve Supply Chain Efficiencywith Vendor-Managed Inventory

Bruce Rishel, CSCPMay 5, 2008

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Proprietary and confidential. 2008 Perot Systems. All rights reserved. All trademarks are the property of their respective owners.www.perotsystems.com 2

VMI Defined

The 11th Edition APICS Dictionary defines

the synonymous term consigned stocks asfollows:

Inventories, generally of finished goods, thatare in the possession of customers, dealers,

agents, and so on, but remain the property ofthe manufacturer by agreement with those inpossession. Syn: consignment inventory,vendor-owned inventory

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Scope

The impact of VMI on the supply

chain

Business benefits, costs and

incentives VMI process flow

SAP master data, configurationand execution to support VMI

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4/27Proprietary and confidential. 2008 Perot Systems. All rights reserved. All trademarks are the property of their respective owners.www.perotsystems.com 4

Drivers

Reduced inventory holding costs

Increased supply chain visibility andthere by fewer stock outs

More frequent replenishments leadingto more predictable demand

Improved customer service

Lower overall warehouse andtransportation costs

Done right, VMI can

lead to many supply

chain improvements

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Reduced Inventory Holding Costs

Cost of capital tied up in

inventory

Cost of warehouse space

holding materials Cost of writing off potentially

obsolete inventory

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Visibility

VMI increases the visibility to

actual sales

VMI reduces forecasting errors

that often lead to the bullwhipeffect

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Replenishment

Frequent replenishment is possible

because the vendor has direct accessto the retailers stores and can seedirectly the customers purchaseswithout having to wait on purchase

orders or forecasts from the retailer

By increasing the frequency ofreplenishment, total inventory in the

supply chain is reduced because lessinventory needs to accumulate tomeet fluctuating demand

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Importance

thanks to improvements in technology, firms now have timelier andbetter information about buyers. Speedier market intelligence and

production in smaller batches allows firms to match supply tochanging conditions. This makes huge stocks unnecessary andminimizes the lurches in inventories that were once so destabilizing.

on average, more than half the improvement in the stability ofeconomic growth in the countries they studied is accounted for bydiminished inventory cycles. That something so workaday as supply-

chain management could have so marked an effect might seem a dullconclusion. But dullness is a virtue, because technologicalimprovement is irreversible. This means the greater stability it providesis likely to be permanent.

The Turning Point. The Economist 20 Sept 2007.

The potential

importance of

vendor managedinventory on the

supply chain can

not be overstated

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Challenges

Inventory levels at vendor vs.

retailer

Priority alignment

Reduced retailer control

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Considerations

Does the firm implementing VMI have thesupply chain clout to facilitate the change to aVMI model

Are the vendor and retailer systemsintegrated in such a way to enable

information to be quickly shared Are the terms of the VMI agreement spelled

out contractually so all parties involvedunderstand their responsibilities

Is there a process and team in place tohandle any disagreements that should occur

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Process Flow - VMI Replenishment

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Process Flow - VMI Fulfillment

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SAP Solution - Setup

Master Data

Material master

Purchasing info records

Source lists

Configuration

Stock determination

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SAP Solution Material Master

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SAP Solution Info Record

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SAP Solution Source List

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SAP Solution Configuration

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SAP Solution Configuration

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SAP Solution Process: MRP

Run MRP

Create vendor consigned K stockpurchase requisition

Convert purchase requisition topurchase order

Purchase order informs supplier ofneed for inventory and are not usedto pay for the materials

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SAP Solution Process: Receiving

Receipt into inventory

Receive against consignmentpurchase order into supplier ownedinventory using SAP transactionMIGO

Same process used when receivingcompany owned stock against areplenishment purchase order

If using SAP warehousemanagement, the same transactionperforms the putaway as whenreceiving company stock

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SAP Solution Process: Fulfillment

Sales order fulfillment

Sales orders created to consume inventory ATP checks company owned and supplierowned materials

A single delivery against the sales order can

include both company and supplier ownedmaterials

Stock determination decides which stock isconsumed first

Supplier Payment Goods issue against the delivery creates the

accounting document used to pay thesupplier

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Take Home Thoughts

Minimal master data and few

configuration settings required to set upVMI in SAP

VMI can be managed side by side withcompany owned stock, one can takepriority over the other

Successful VMI partnerships focus onprocess and overall supply chain benefit

creating a win-win situation for all partiesinvolved

Ac c ess SAPPHIRE '08

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Ac c ess SAPPHIRE 08

Orlando Onl ine

www.sap.com/us/sapphire

Watch video recordings, download audio filesin MP3 format, and view the slides fromall keynotes and presentation sessions.

2008_05_sapphire_us_or4262

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