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    Vendor Managed Inventories

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    Geoffrey Haley
    1) Vendor managed inventory (VMI) is a system where the manufacturer or vendor monitors and manages the inventory levels of the distributor or retailer. 2) Under VMI, the vendor takes responsibility for inventory management decisions like order quantities, product mixes, and safety stock levels to better support integrated supply chain objectives. 3) Benefits of VMI include lower inventory costs, improved forecasting, fewer stockouts, increased inventory turns, and stronger vendor-customer relationships.

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    Vendor Managed Inventories

    Uploaded by

    Geoffrey Haley
    99 views20 pages
    1) Vendor managed inventory (VMI) is a system where the manufacturer or vendor monitors and manages the inventory levels of the distributor or retailer. 2) Under VMI, the vendor takes responsibility for inventory management decisions like order quantities, product mixes, and safety stock levels to better support integrated supply chain objectives. 3) Benefits of VMI include lower inventory costs, improved forecasting, fewer stockouts, increased inventory turns, and stronger vendor-customer relationships.

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    1) Vendor managed inventory (VMI) is a system where the manufacturer or vendor monitors and manages the inventory levels of the distributor or retailer. 2) Under VMI, the vendor takes responsibility for inventory management decisions like order quantities, product mixes, and safety stock levels to better support integrated supply chain objectives. 3) Benefits of VMI include lower inventory costs, improved forecasting, fewer stockouts, increased inventory turns, and stronger vendor-customer relationships.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    99 views20 pages

    Vendor Managed Inventories

    Uploaded by

    Geoffrey Haley
    1) Vendor managed inventory (VMI) is a system where the manufacturer or vendor monitors and manages the inventory levels of the distributor or retailer. 2) Under VMI, the vendor takes responsibility for inventory management decisions like order quantities, product mixes, and safety stock levels to better support integrated supply chain objectives. 3) Benefits of VMI include lower inventory costs, improved forecasting, fewer stockouts, increased inventory turns, and stronger vendor-customer relationships.

    Copyright:

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    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 20

    VENDOR MANAGED

    INVENTORIES

    Supply Chain Management


    Assignment 1 – Reading 5
    May 17, 2004
    THE WAY FORWARD …….
    - TEAM

    Manoj Sekhar –
    Zaheer Ahmed
    Biju –
    Deepthi S –
    Sara Brito - 2532396
    THE WAY FORWARD …….

    • What is VMI ?
    – Vendor Managed Inventory
    • A Distribution Channel Operating System
    • Purpose of VMI ?
    – A system by which a Mfg/Vendor
    • Monitors & Manages the inventory of
    Distributor/Retailer
    THE WAY FORWARD …….

    • Tactical Activities of VMI


    – Determining appropriate order quantities
    – Managing Proper Product Mixes
    – Configuring appropriate safety stock levels
    THE WAY FORWARD …….

    • VMI Rationale
    – Decision making responsibility is pushed up the
    supply chain, to enable the mfg/vendor to better
    support the objectives of the entire integrated
    supply chain
    • Resulting in sustainable competitive advantage
    • Centralizing the replenishment decision thus helping
    reduce distortions in ordering

    VMI Allows information to be used more intelligently


    THE WAY FORWARD …….

    • Primary Mechanisms of VMI


    – Strategic Element
    • Less time on physical inventory counts
    • Less time finding misdirected inventory
    • Less time entering data into large customised systems
    – Technological Competency
    • Cross-docking, Advance Shipping notices, barcoding and
    other electronic enhancements
    • Electronic Data Interchange (EDI)
    • Point of Sales (POS) and inventory information retained by
    Dist/Retailer

    VMI Allows information to be used more intelligently


    THE WAY FORWARD …….

    Retailer Inventory Levels


    & 1. Product data exchange – EDI 852

    Sales History
    Retailer WHSE
    /Store

    3a. Retailer received – EDI 861 PRODUCT


    3b. Payment Advice – EDI 820 Vendor

    2a. PO(Purchase Order) – EDI 850


    2b. ASN(After Shipment Notice) – EDI 856
    2c. Invoice EDI 810
    Retailer
    THE WAY FORWARD …….

    • Challenges for Implementing VMI


    – Systems / Data limitations
    • Broad Range (Configuration, Operational, Procedural issues)
    – Narrow the Focus
    – Process & Conceptual Concerns of the Pilot Program
    • Pre-conceived beliefs of Distributors/Retailers that they can
    manage its inventory better than the vendors
    • Limitations of existing computer system
    – Initiate improvement goals for vendors involved in the pilot
    program
    THE WAY FORWARD …….

    • 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 the
    vendor’s performance
    – Setting up establishing electronic connections

    VMI – Moving the organization in the right strategic direction


    THE WAY FORWARD …….

    • Benefits from VMI


    – Better Forecasting
    • Lowered Investment in the Supply Chain
    – Less Overstocking
    • JIT Delivery
    – Greater Inventory Turnover
    – Improved Customer Service
    • Fewer stockouts
    • Optimal Product Mixes
    – Ordering Raw Materials Efficiently
    • Schedule Production
    • Transportation
    – Develop Closer Ties with Customers
    • Observing End-User Consumption
    • Observing General Market Trends
    THE WAY FORWARD …….
    • Benefits to Mfg/Vend • Benefits to Dist/Ret.
    – Lower Inventory – Fewer stock-outs with
    investment (Raw & higher turnover
    Finished) – Better market information
    – Better Scheduling & – More optimal product
    Planning mixes
    – Better Market Information – Less inventory in channel
    – Closer Customer Ties & (transfer costs)
    preferred status – Lower administrative
    replenishment costs
    THE WAY FORWARD …….

    • Customers Patronizing VMI


    – K-Mart
    – ACE Hardware
    – Fred Meyer
    – Grand Union
    – Oshawa Foods
    – Panduit
    THE WAY FORWARD …….

    • The Strategic Approach


    – Focus Your Efforts
    – Trust & Partnership between Supply Chain
    Stakeholders
    – Highly Effective Computer Systems
    – Competent Mfg/Vends and the Ability to
    Forecast
    – Willing Stakeholder Partners & Patience

    VMI – cannot be set overnight


    THE WAY FORWARD …….

    • VMI’s Problems
    – Complex Questions
    • Is solid & comprehensive data (POS) available?
    • Does the Mfg/Vendor have the capabilities in the area of
    forecasting or retail inventory management ?
    – Does the Mfg/Vendor understand’;
    • The true nature of POS data?
    • How the Dist/Ret is using the stock that is ordered?
    • How long the units were inventoried?
    • Whether they were special orders?
    • If they were ordered just to create full truck loads?
    • The number of end users the units were going to?
    THE WAY FORWARD …….

    • VMI’s Problems
    – Complex Questions
    • How flexible will the system be in the event of required changes & modifications -
    to have the ability to forecast accurately based on?
    – Promotions?
    – Seasonal Variations?
    – New Product Introductions?
    – Selling incentives?
    • What percent of their total volume do the VMI vendors sell through the distributor
    / retailer?
    • Will there be minimum volume or exclusivity requirements? What product items
    are being considered ?
    – For what type of Products 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
    THE WAY FORWARD …….

    • Outlook And Future Of VMI


    – Acceleration of trends towards’;
    • Cycle Time Compression
    • Reduced inventory
    • Increased inventory velocity
    • Greater use of EDI
    • Information Tech. & SCM will affect the future growth &
    development of Logistics
    – Pooling of Shipments as a Logistics Strategy
    – Closer Attention to Supply Chain Management
    – VMI programs will grow substantially in the near future
    THE WAY FORWARD …….

    • Conceptual Evolution of Inventory


    Management

    Owner Continuous Consignment


    Direct
    Managed Replenishment VMI Selling
    Selling
    Inventory CR CS
    THE WAY FORWARD …….

    • Recommendations
    – VMI should not be viewed solely as a cost
    reduction method for one of the players in the
    supply chain
    – It should be viewed as a tool to successfully
    • Manage the Whole Supply Chain
    • Reduce Costs
    • Provide Greater Value to the Consumer
    • Spread Savings to All Participants
    THE WAY FORWARD …….

    • Conclusions
    – By Forming alliances with partners early, long
    term viability is greatly enhanced with future
    uses of Technology including Internet
    – “Tailored Logistics Strategy” (TLS)
    incorporates only the tenets of VMI/EDI that
    apply to an organizations unique needs
    • TLS approach will increase the probability of
    success with VMI programs and related
    improvement techniques

    VMI will not dominate all logistics thought & practice


    THE WAY FORWARD …….

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