vmi1
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(VMI)(VMI)VENDOR MANAGED VENDOR MANAGED
INVENTORYINVENTORY
(VMI)(VMI)VENDOR MANAGED VENDOR MANAGED
INVENTORYINVENTORYbyby
Bader BamegbelBader BamegbelOsama BukhariOsama BukhariAbdullah Ja’farAbdullah Ja’far
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What is VMI?What is VMI?
• A means of optimizing Supply Chain performance in which the manufacturer is responsible for maintaining the distributors inventory levels.
• The manufacturer has access to the distributor’s inventory data and is responsible for generating purchase orders.
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Typical business Typical business model:model:
• The Distributor places an order from the manufacturer.
• The distributor is in total control of the timing and size of the order being placed.
• The distributor maintains the inventory plan.
• Setup and order cost are included.
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VMI Model:VMI Model:
• Date ( sales & stock levels) are sent from the distributors to the manufacturer via internet or EDI.
• The manufacturer can view every item that the distributor carriers as well as true point of sale data.
• the manufacturer generates the order, not the distributor.
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VMI HistoryVMI History
• (VMI) was coined in the USA in the early 1990s.
• The major projects was being implemented by Wal-Mart, K-Mart and Home Depot.
• manufacturers began to see it as an effective way of regaining control of their supply chain and reducing the power base of the large retailer.
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Benefits of VMIBenefits of VMI
• Smoother demand.• Increasing in sales.• Lower inventories and reduced
costs to other industries. • Planning and ordering cost will
decrease due to the responsibility being shifted to the suppliers.
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BenefitsBenefits
• The overall service level is improved by having the right product at the right time.
• Having the correct item in stock when the end customer needs it, benefits all parties involved.
• React more quickly to market requirements.
• Manage new product better.• Reducing stock out rate.
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Implementation of Vendor Implementation of Vendor Managed InventoryManaged Inventory
Implementation of Vendor Implementation of Vendor Managed InventoryManaged Inventory
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Implementation of VMIImplementation of VMI
• Agreement between supplier and retailer
( fill rates, frequency of replenishment(
• Informing about VMI - Employees, inventory and replenishment planners - Strategic management team should understand the concept and be ready to accept the concept of inventory management by a third party
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Implementation of VMIImplementation of VMI• Data Exchange
1) A one-time exchange of retailer’s sales history (daily/weekly)2) Ongoing product activity data exchange using EDI.
- EDI refers to thecomputer-to-computer transmissionof business information betweentrading partners- Covering all possible documents exchanged and for all types of products.
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Implementation of VMIImplementation of VMI
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Implementation of VMIImplementation of VMI
• Ordering- the vendor calculates the reorder point- The quantity available with retailer is then compared to the calculated reorder quantity level and order quantities are determined
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Implementation of VMIImplementation of VMI
- The created orders will be communicated tothe retailer.
- Finally, the shipment is sent.
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Implementation of VMIImplementation of VMI
• Invoice Matching
• Measurement
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Basic VMI SoftwareBasic VMI SoftwareBasic VMI SoftwareBasic VMI Software
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Basic VMI SoftwareBasic VMI Software
1) Homemade
- Requires expert in the area of VMI, Inventory Management and a few good programmers
- Reflects the uniqueness of your company.
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Basic VMI SoftwareBasic VMI Software
2) Pre-Packaged
- EDI or Internet based
- Sometimes it can be customized to meet your companies specific needs.
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Successful example Successful example of VMI of VMI
implementationimplementation
Successful example Successful example of VMI of VMI
implementationimplementation
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Wal-Mart and P&GWal-Mart and P&G
• Wal-Mart tired to utilized its capabilities to make more inventory of the most demanded items while reducing the overall inventory.
• Networked its supplier by computers.
• Cooperates with Proctor & Gamble (P&G) for maintaining inventory in stores.
• Built an automated re-order system linking all computers between P&G and its stores and other distribution centers.
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Wal-Mart and P&G
How the collaboration worked
• The computer system at Wal-Mart stores identified an The computer system at Wal-Mart stores identified an item which was low in stock and sent a signal to P&G.item which was low in stock and sent a signal to P&G.
• the system sent a re-supply order to the nearest P&G the system sent a re-supply order to the nearest P&G factory through a satellite communication system.factory through a satellite communication system.
• P&G delivered the item either to the Wal-Mart P&G delivered the item either to the Wal-Mart distribution center or directly to the concerned stores.distribution center or directly to the concerned stores.
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Wal-Mart and P&G
• Successful proposition for both.
• Wal-Mart could monitor its stock levels in the stores constantly .
• identify the items that were moving fast.
• P&G could also lower its costs.
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CASE STUDYCASE STUDYCASE STUDYCASE STUDY
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Point Spring & Draft Shaft Point Spring & Draft Shaft CompanyCompany
• PSD is a leading distributor of medium and heavy-duty truck parts.
• In 1997 PSD combined with Brak Drum & Equipment Company to expand their scope of expertise and better service their customers.
• Out of 5,000 truck parts distributor, PSD was recently recognized by truck parts and service magazine as one of the top five distributors in the United States.
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• The critical component of PSD’s success is to have the right parts available at the right time.
• Point Spring manager, states, “When we don’t have the right parts on-hand, the process of expediting orders drives our costs up and therefore, reduces our margins and potential profit.“
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• Why PSD used VMI?
• Using the traditional business systems to manage inventory were sufficient, but they had limitations.
• Critical inventory activities information was not updated frequently enough to maintain a clear picture of fluctuating customer demand.
• “These systems were slow to react which put us in stock-out situations and forced us to expedite orders at substantial increase in costs, in order to maintain our customer service commitments”.
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• PSD’s weak working relationship with suppliers affects its ability to satisfy demand of its customer.
• PSD found many of the leading companies were using VMI to gain the benefits that it was looking for.
• research led PSD to Enterprise Data Management and their Datalliance VMI service.
• VMI was applied in PSD to only some product
lines.
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Results from using VMI
• helped PSD effectively manage inventory.
• the appropriate quantity of a specific part in stock, when the customer needs it.
• Sales in VMI lines increased between 7%-10% with no increase in inventory.
• VMI helped PSD to decrease inventory carrying and expediting cost.
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• VMI product lines actually increased slightly to 96%.
• VMI benefits the suppliers in making good forecasts and manufacturing plans due to daily basis customer demands available.
• "We absolutely value our suppliers that use VMI, and have set an objective to convert our top 15 suppliers to VMI as soon as possible," concludes Ryan.
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Non successful Non successful example of VMI example of VMI implementationimplementation
Non successful Non successful example of VMI example of VMI implementationimplementation
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K-Mart ExampleK-Mart Example• K-Mart has also cut back its VMI program from more
than 300 suppliers down to about 50.
• vendor departments achieve service levels of 99.5% while maintaining inventory levels at more than 70% below objective.
• found most manufacturers did not have adequate forecasting.
• K-Mart's loss of control over the scheduling of shipments was a major factor in trimming the program.
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The biggest The biggest obstacles to obstacles to
VMIVMI
The biggest The biggest obstacles to obstacles to
VMIVMI
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• Two major obstacles to a successful VMI implementation:
• Strategic: the concerns most often expressed at the distributor level.
• Some distributors concerned about letting their private information getting into the hands of their vendors.
• At the strategic level, a high level decision must be made about how the company wants to position itself.
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• Operational: job functions, processes and performance measurements will all need to change in order to get the most benefit.
• The sources of resistance are many, but the most common is change.
• Other issues that interrupt VMI implementation are regarding the management of change and specific job changes.
• Concerns such as the role of buyers and sales people in the new environment and the new measurement systems must be addressed.
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ConclusionConclusion
• Although there has been some cases with unsatisfactory results in applying VMI concept, but in general the VMI systems has been highly successful in most experiences.
• On paper, VMI seems simple to implement, but in the real world of personalities and professional relationships, there are many obstacles to climb.
• In short, trust is very important for the VMI model to succeed.
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Questions Questions & Answers& AnswersQuestions Questions & Answers& Answers