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VENDOR MANAGEDINVENTORY

How to Get the Best

Results

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Agenda

What Is Vendor-ManagedInventory (VMI)

ObjectivesWorking Cases

Preparation

Information Systems Issues

Assessment and Agreement

Measurements

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What Is Vendor-Managed Inventory?

Choose the correct answer:

1. Optimizes supply chain performance2. Supplier has access to customers inventory

data

3. Supplier is responsible for maintaining the

inventory level required by the customer4. The process is to resupply inventory by the

vendor via scheduled reviews

5. All of the above

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Vendor-Managed Inventories

It has been anevolution:

Stock

replenishmentRetail

Consignment

Systems contracts

Standardmaterials

Scrutinizedinventory

Customer

B

Customer

C

Customer

A

Vendor

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Objectives

Customer Reduced inventory

Reduced operatingcosts

Total cost reduced

Purchasing andadministrative costs

Fewer suppliers

IntangiblesShorter cycle time

Greater customersatisfaction

Supplier Increased volume

Forces disciplines

Measurements

Communication

Better planning andresource use

Visibility via

information sharing Need to eliminate or

reduce non-value-added activities

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Working Cases

Retail Corning

Wal-Mart (Quick ResponseProgram)

Industrial

Bose (unique planning)

Rohm-Haas (MRO)

Shamrock Supply

(integrator) Shell (unique)

Contract Manufacturing(various)

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Preparation: Questions for

Selecting Materials

What are your intentions?

Reduce workload to concentrate on $$$

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

Requires closer cooperation

Which items/commodities have attributed to the

greatest delays?What is important to your company?

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Operational Practice

Considerations

Warehousing Alternatives

Supplier managed

Automatic replenishment (owned or managed)

Best for reasonable degree of predictability

Appropriate directly to point of use Two-bin or eyeball control levels periodic

Managed on customer site

Supplier personnel work as planners on customerbehalf

Works best when customer has a wide line card Utilizes customers planning/replenishment system

BE AWARE OF DATA ACCURACY/MANAGEMENT!!

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Information Systems

Management

Sharinginformation How good are forecasts?

Typically poor

So what do you do?

Establish a baseline

What do we plan for?

Need to review

Who takes the lead?

How often is this done?

When does this go away?

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Information Systems

(continued)

Reliability of data Control of activities

How well do we knowwhats happening in ourprocesses?

Procedures, flows,people deployment

Are we achieving whatis intended?

Measurements ofkey areas

On-handinventory

Stock outs

Aging

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Assessment

Process status

Under control?

Remember the

pitfallsRecord reliability

Information sharing

Lacking skill sets

What are theresults?

What are thecorrective actions?

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Creating an Agreement

Critical factors Identify the items

Define the points ofoperational responsibility

Storage, persons,quality, returns, etc..

Identify and monitorcosts

Develop service levelmeasures and note

reports to be used

What are thecorrective action stepsand timing?

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Agreement

(continued)

Factors (continued) Specify price escalators

and de-escalatorprocesses

Price changesrelated to businessconditions

Reference proceduresto be used

Timing/duration

Periodic audits

Termination clause

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Performance Measurements

How to ensure VMI will enhance thebusiness?

Establish measures identify the goalStarting number of items vs. potential

Inventory $ initially vs. potential

Total inventory $ at start, during, and after

Respective inventory turns and days of supply

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Measurements

(continued)

Operational improvements

Internal

The number of stock outs and duration

Cost of material/service before and after

External

Customer satisfaction

Improvement of delivery availability

Other points as defined by the parties

Competitive advantage considerations

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Whats Next?

Success Three Es

Execution

Energy

Excitement

Pilot then expandSuccess breedsdesire

Measure and adjustTHERE ISNT ANY

LUCK, JUST THEOPPORTUNITY TO

SUCCEED