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VENDOR MANAGED INVENTORIES
Supply Chain Management
Assignment 1 ± Reading 5May 17, 2004
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THE WAY FORWARD ««.- TEAM
Manoj Sekhar ± Zaheer Ahmed
Biju ± Deepthi S ±
Sara Brito - 2532396
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W hat is VMI ?
± Vendor Managed InventoryA Distribution Channel Operating System
P urpose of VMI ? ± A system by which a Mfg/Vendor
Monitors & Manages the inventory of Distributor/Retailer
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T actical Activities of VMI
± Determining appropriate order quantities ± Managing P roper P roduct Mixes ± Configuring appropriate safety stock levels
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VMI Rationale
± Decision making responsibility is pushed up thesupply chain, to enable the mfg/vendor to better support the objectives of the entire integratedsupply chain
Resulting in sustainable competitive advantageCentralizing the replenishment decision thus helpingreduce distortions in ordering
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VMI Allows information to be used more intelligently
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P rimary Mechanisms of VMI ± Strategic Element
L ess time on physical inventory countsL ess time finding misdirected inventoryL ess time entering data into large customised systems
± T echnological CompetencyCross-docking, Advance Shipping notices, barcoding and other electronic enhancementsElectronic Data Interchange (EDI)P oint of Sales ( P OS) and inventory information retained byDist/Retailer
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VMI Allows information to be used more intelligently
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Retailer Inventory L evels&
Sales History
Vendor
Retailer
Retailer W HSE/Store
1. P roduct data exchange ± EDI 852
2a. P O(P urchase Order) ± EDI 8502b. ASN(After Shipment Notice) ± EDI 8562c. Invoice EDI 810
3a. Retailer received ± EDI 8613b. P ayment Advice ± EDI 820
P RODUC T
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Challenges for Implementing VMI ± Systems / Data limitations
Broad Range (Configuration, Operational, P rocedural issues) ± Narrow the Focus
± P rocess & Conceptual Concerns of the P ilot P rogramP re-conceived beliefs of Distributors/Retailers that they canmanage its inventory better than the vendorsL imitations of existing computer system
± Initiate improvement goals for vendors involved in the pilot program
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Challenges for Implementing VMI ± Redefining the relationship with the vendor ± Handing over previously considered proprietary
information ± Handing over new processes & tasks
± Setting up new metrics for measuring thevendor¶s performance
± Setting up establishing electronic connections
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VMI ± Moving the organization in the right strategic direction
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Benefits from VMI ± Better Forecasting
L owered Investment in the Supply Chain ± L ess Overstocking
J IT Delivery ± Greater Inventory T urnover ± Improved Customer Service
Fewer stockoutsOptimal P roduct Mixes
± Ordering Raw Materials EfficientlySchedule P roductionT ransportation
± Develop Closer T ies with CustomersObserving End-User ConsumptionObserving General Market T rends
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THE WAY FORWARD ««.Benefits to Mfg/Vend ± L ower Inventory
investment (Raw &Finished)
± Better Scheduling &P lanning
± Better Market Information ± Closer Customer T ies &
preferred status
Benefits to Dist/Ret. ± Fewer stock-outs with
higher turnover ± Better market information ± More optimal product
mixes ± L ess inventory in channel
(transfer costs) ± L ower administrative
replenishment costs
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Customers P atronizing VMI ± K-Mart ± ACE Hardware ± Fred Meyer ± Grand Union ± Oshawa Foods ± P anduit
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T he Strategic Approach ± Focus Your Efforts ± T rust & P artnership between Supply Chain
Stakeholders ± Highly Effective Computer Systems
± Competent Mfg/Vends and the Ability toForecast
± W illing Stakeholder P artners & P atience
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VMI ± cannot be set overnight
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VMI¶s P roblems ± Complex Questions
Is solid & comprehensive data ( P OS) available?
Does the Mfg/Vendor have the capabilities in the area of forecasting or retail inventory management ?
± Does the Mfg/Vendor understand¶;T he true nature of P OS data?How the Dist/Ret is using the stock that is ordered?
How long the units were inventoried?W hether they were special orders?If they were ordered just to create full truck loads?T he number of end users the units were going to?
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VMI¶s P roblems ± Complex Questions
How flexible will the system be in the event of required changes &modifications - to have the ability to forecast accurately based on?
± P romotions? ± Seasonal Variations? ± New P roduct Introductions? ± Selling incentives?
W hat percent of their total volume do the VMI vendors sell throughthe distributor / retailer?W ill there be minimum volume or exclusivity requirements? W hat
product items are being considered ? ± For what type of P roducts VMI will or will not work?
Can Mfg/Vendors and Dist/Ret. Align themselves to seek long term profitability ?
± Mfg/Vendors want to maximize inventory
± Dist/Retailers want to minimize inventory
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Outlook And Future Of VMI ± Acceleration of trends towards¶;
Cycle T ime CompressionReduced inventoryIncreased inventory velocityGreater use of EDIInformation T ech. & SCM will affect the future growth &
development of L
ogistics ± P ooling of Shipments as a L ogistics Strategy ± Closer Attention to Supply Chain Management ± VMI programs will grow substantially in the near
future
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Conceptual Evolution of InventoryManagement
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Owner Managed
Inventory
ContinuousReplenishment
CR
VMIConsignment
Selling
CS
DirectSelling
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Recommendations ± VMI should not be viewed solely as a cost
reduction method for one of the players in thesupply chain
± It should be viewed as a tool to successfullyManage the W hole Supply ChainReduce CostsP rovide Greater Value to the Consumer Spread Savings to All P articipants
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Conclusions ± By Forming alliances with partners early, long
term viability is greatly enhanced with futureuses of T echnology including Internet
± ³ T ailored L ogistics Strategy´ ( TL S)incorporates only the tenets of VMI/EDI thatapply to an organizations unique needs
TL S approach will increase the probability of success with VMI programs and relatedimprovement techniques
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VMI will not dominate all logistics thought & practice
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