Vendor Managed Inventory Modul: Supply Chain Management (FEG 2323) Tahun : 2011 ~ 2012 Content Parts Page 1. Introduction4 2. Defination4 3. Goal5 4. Objective5 5. Benefit6 6. Disadvantage7 7. Characteristic7 8. Method8 7. Summary9 8. Conclusion9 9. Reference11 10. Contact11 VENDOR MANAGED INVENTORY (VMI) 1. Introduction Vendor Managed Inventory (VMI) systems came into vogue in the 1990’s as a way to decrease supply chain costs. Some firms have successfully improved their supply chain performance by implementing an approach known as Vendor Managed Inventory (VMI).
With VMI, the vendor specifies delivery quantities sent to customers through the distribution channel using data obtained from EDI (Electronic Data Interchange). http://www. quickmba. com/ops/vendor-managed-inventory/ 2. Definition A means of optimizing Supply Chain performance in which the manufacturer is responsible for maintaining the distributor’s inventory levels. The manufacturer has access to the distributor’s inventory data and is responsible for generating purchase orders. To further define it, let’s look at 2 business models: . 1Under the typical business model: When a distributor needs product, they place an order against a manufacturer. The distributor is in total control of the timing and size of the order being placed. The distributor maintains the inventory plan. 2. 2Vendor Managed Inventory model: The manufacturer receives electronic data (usually via EDI or the internet) that tells him the distributor’s sales and stock levels. The manufacturer can view every item that the distributor carriers as well as true point of sale data.
The manufacturer is responsible for creating and maintaining the inventory plan. Under VMI, the manufacturer generates the order*, not the distributor. *Note: VMI does not change the “ownership” of inventory. It remains as it did prior to VMI. Consignment Inventory: When the supplier places inventory at a customer’s location and retains ownership of the inventory. Payment is not made until the item is actually sold. A VMI relationship may or may not involve consignment inventory. http://www. vendormanagedinventory. com/definition. php 3. Goal
The goal of Vendor Managed Inventory is to provide a mutually beneficial relationship where both sides will be able to more smoothly and accurately control the availability and flow of goods. http://scm. ncsu. edu/scm-articles/article/vendor-managed-inventory-vmi-three-steps 4. Objective VMI reduces stock-outs and reduces inventory in the supply chain. Some features of VMI include: • Shortening of the supply chain • Centralized forecasting • Frequent communication of inventory, stock-outs, and planned promotions. Electronic Data Interchange (EDI) linkages facilitate this communication. • No manufacturer promotions Trucks are filled in a prioritized order. For example, items that are expected to stock out have top priority, then items that are furthest below targeted stock levels, then advance shipments of promotional items (promotions allowed only in transition phase), and finally, items that are least above targeted stock levels. • Relationship with downstream distribution channels Result: Inventory reduction and stock-out reduction http://www. quickmba. com/ops/vendor-managed-inventory/ 5. Benefit The benefits implementing the VMI are devided by 4 categories. There are; 5. 1. Supply Chain level 1. minor inventory levels at total supply chain level . Less overhead 3. Increase sale 4. Reduces human data entry errors 5. 2. Vendors 1. Better insight in customer demand (better resource usage, reduced raw & finished goods inventories) 2. Improved, more direct communication with customers, improved market analysis 3. Increased sales via lower out of stock rates 4. Oppurtunity to provide category management and other value-added services 5. 3. Suppliers 1. Reduced replenishment times and lower inventory costs 2. Increased sales through reduced stock outs 3. Less redundancy 4. Build strategic strengths through establishing strong supply chain reletionships 5.
Vendor assistance with category management 5. 4. End users 1. Increased service level 2. Reduced stock outs http://www. 12manage. com/methods_vendor_managed_inventory. html 6. Disadvantages or Limitations In this successful of the VMI there are some disadvantages. There are; 1. Success of VMI initiative depends on the strength of relationship between the vendors and retailers 2. Increased dependency between the parties and increased switching costs 3. Lack of trust to exchange data can result in the ineffective implementation in one or more of the following forms – Inventory invisibility – Inventory imbalance 4.
Costs of technology and changing organization 5. Extensive data and EDI testing is needed 6. Loss of necessary shelf space at the selling party may results in less attention by buyers, compared to competitors that are not into VMI yet. 7. Special promotions or events need to be communicated beforehand to avoid replenished planning mistakes (loss of flexibility) 8. Increased vulnerability for non-foreseeable risks such as employee strikes, hurricanes, etc due to lower inventory levels 9. Most of the benefits are for the end client and for the selling party, while the vendor does much of the work http://www. 12manage. om/methods_vendor_managed_inventory. html 7. Successful Characteristics The make the company very successful in the implementing of the VMI, they must have these characteristics; 1. Multiple outlets, because this increases the benefits compared to traditional inventory management 2. Severe consequences in case of human errors (pharmaceutical) 3. Industries with steady and high volumes (Retail, Consumer Product) 4. Industries with high value inventory and a high level of demand unpredictability (high tech) 5. Management with strong leadership capability to form stratyegic long term partnerships (automotive) ttp://www. 12manage. com/methods_vendor_managed_inventory. htm 8. Method Between the methods were introduced, there is a reliable method which is a seamless system of VMI. It is, 1. COMMUNICATE expectations of all parties. Customers and suppliers must make the effort to sit down and discuss the goals and objectives of implementing VMI. The importance of this step cannot be overstated. Both parties’ hardware and software requirements must be identified, and an understanding must be reached in terms of how both companies’ systems will communicate.
Then a plan for implementation must be mapped, specifically identifying each party’s financial and other responsibilities. 2. Customer must commit to sharing PRECISE information. Suppliers must have visibility into the customer’s internal sales and inventory information. Without accurate data, ability to quickly meet demand will be impaired. 3. Suppliers must ensure RELIABLE transmission, receipt, and use of information. To facilitate step 2, the supplier must be able to guarantee that the customer’s trusted information will be communicated, received, and utilized securely and thoroughly to meet the designated needs.
Time should be spent during the planning phase discussing information precision and reliability. 4. Sufficiently TEST systems before going live. As with any new system, testing will uncover any bugs or inefficiencies and can help to avoid future headaches. 5. Expect implementation to be a PROCESS not a project. Remember that there is no on/off switch. Adjustments will have to be made as demand levels fluctuate, and no system will be perfect 100% of the time. 6. Plan to spend sufficient TIME AND MONEY to make it work. Most successful VMI systems we’ve read about took 2-2. years to put into operation, and cost hundreds of thousands of dollars for IT and training. Spending (or finding) the time to create a comprehensive system can be a challenge. http://rising-entropy. blogspot. com/2008/02/six-steps-to-successful-vmi-system. html 9. Summary Trading partners who focus on the changing business relationship can maximize their benefits. Under VMI, suppliers and customers can both recognize and focus on the same issue: how to sell more products to the end user more efficiently. This changes the suppliers focus from how to get the customer to buy more to how to help the customer sell more.
This change in relationship is the most exciting feature of VMI. www. datalliance. net 10. Conclusion The benefits of VMI are due to the increased information flow between the customer and supplier. This information needs to be part of the day to day process for all parties in order to assure the quality and freshness of the data. www. datalliance. net ———————– 2011 Executive Diploma in Manufacturing Technology and Management (EDMTM), Executive Diploma in Technology Management (EDTM). Vendor Managed Inventory