Description
It also includes benefits of VMI to manufacturers and retailers. It includes case study of marico's implementation of VMI.
VMI – INDIAN RELEVANCE AND SCOPE
INVENTORY MANAGEMENT EVOLUTION
Owner Managed Inventory
Continuous Replenishment
Vendor Managed Inventory
Consignment Selling
Direct selling
VENDOR MANAGED INVENTORY (VMI)
VMI is essentially an integrated approach whereby the inventory at the distributor/retailer (downstream) is monitored and managed by the manufacturer/vendor (upstream) OR “A mechanism where the supplier creates the purchase orders based on the demand information exchanged by the retailer/customer”
VMI RATIONALE ….
By pushing the decision making responsibility further up the supply chain, the manufacturer/vendor will be in a better position to support the objectives of the entire integrated supply chain resulting in sustainable competitive advantage
VMI – WHY & WHAT
?
Collection and centralization of inventory data
?
Optimising Supply Chain performance
?
Collaborative supply chain initiative
?
Manufacturer has access to the distributors inventory data and is responsible for generating purchase orders
?
Manufacturer is responsible for maintaining the distributors inventory levels
VMI INCLUDES …
?
Determining appropriate order quantities
?
Managing proper product mixes
?
Configuring appropriate safety stock
VMI PROCESS TYPES
?
SIMPLE, STOCK INDUCED REPLENISHMENT: The vendor generates the purchase orders for his customer (example: retailer) based on the stock situation at the customers distribution centers ADVANCED, REQUIREMENT-BASED REPLENISHMENT: The customer forwards his actual sales data to the manufacturer, enabling the supplier to produce more accurate requirements forecasts and to respond to these requirements VMI WITHIN A REQUIREMENTS-ORIENTED REPLENISHMENT PROCESS: The manufacturer and the customer agree on the factors that determine the mid-term demand situation and improve the accuracy of the short-term replenished quantities this way
?
?
VMI - TYPES
Inbound
•Management of raw material inventories at your plant, by your manufacturer •Inventory measurements are often already available in real-time database •Can generally transfer data via VPN to central server for remote access by vendors •New sensors installed as required and interfaced to site database or a Remote Monitoring Unit
Outbound
•Management of product inventories at your customer sites, by your own personnel •Inventory measurements not usually available •Sensors collect data ( Remote Monitoring Unit) •Communication to central ERP system for remote access via dial-up modem, wireless, cellular, etc
CONVENTIONAL INVENTORY MANAGEMENT
?
Retailer/ Distributor
? monitors inventory levels ? places orders
?
Manufacturer/Vendor
? manufactures/purchases product ? assembles order ? loads vehicles
? routes vehicles
? makes deliveries
Problems with Conventional Inventory Management
?
Large variation in demands on production and transportation facilities Workload balancing
? ? ?
Utilization of resources
Unnecessary transportation costs urgent vs. nonurgent orders Setting priorities
? ?
VENDOR MANAGED INVENTORY
?
Retailer/ Distributor
? Trusts the vendor to manage the inventory
?
Manufacturer/Vendor
? Monitors customers’ inventory
? customers call/fax/e-mail ? remote telemetry units ? set levels to trigger call-in
? Controls inventory replenishment & decides
? when to deliver ? how much to deliver ? how to deliver
TYPICAL BENEFITS TO MANUFACTURERS
? ?
Lower inventory investments (raw and finished)
More freedom in when & how to manufacture product and make deliveries
More uniform utilization of resources
? ? ?
Better coordination of inventory levels at different customers
Better coordination of deliveries to decrease transportation cost Better Market Information
?
?
Promotions can be more easily incorporated into the inventory plan.
TYPICAL BENEFITS TO RETAILERS
? ? ? ? ?
?
?
Fewer stock-out with higher inventory turnover Better market information More optimal product mix Less resources for inventory management Assurance that product will be available when required The manufacturer is more focused than ever in providing great service. Planning and ordering cost will decrease due to the responsibility being shifted to the Manufacturer.
WHAT’S NEEDED TO MAKE VMI WORK
?
Information management is crucial to the success of VMI
? ? ? ?
inventory level data historical usage data planned usage schedules planned and unplanned exceptional usage
WHAT’S NEEDED TO MAKE VMI WORK
?
Accurate and timely forecasts of future demand Convince management that VMI will be beneficial, and that it can be implemented successfully
?
?
Convince customers that VMI will be to their benefit
Make good replenishment decisions - decision support
?
INVENTORY ROUTING PROBLEM
?
Plants
?
?
Products
Objective
? Choose a distribution
?
Drivers and Vehicles
Costs
? Transportation cost
? Revenue earned ? Shortage cost
?
policy that maximizes the expected total discounted value (rewards minus
? Inventory holding cost
costs) over a long horizon
INVENTORY ROUTING PROBLEM
?
Decision making: decide on a regular (daily) basis ? whom to deliver to ? when to deliver ? how much to deliver ? how to combine deliveries into routes ? how to combine routes into driver schedules
INVENTORY ROUTING PROBLEM
?
Important factors to take into account ? Likelihood of customer stocking out ? Consequences if customer stocks out ? Impact of today’s decisions on future situation ? Benefits of coordinating deliveries to close customers
VMI SUCCESS FACTORS
?
? ? ?
Top management commitment
Focus on effort Trust and partnership between supply chain stakeholders Highly effective computer/information systems (EDI, Bar coding, Scanning)
?
?
Competent manufacturers and the ability to forecast
Willing stakeholders partners and patience
TYPICAL VMI PROCESS
Problems identified in organizing supply chains in India 1.
Majority of Indian organizations have a weak alignment of supply chain strategy with business strategy.
2. Indian organizations considered IT tools as costly drivers and not enablers. 3. Organizations lack the supply chain mindset for supply chain partnerships. 4. Lack of understanding of towards the concept of business culture
Reasons for adoption of VMI
?
Stiff competition from multinationals
?
Shrinking product life cycle
?
global geographic spread
Obstacles in implementation of vmi
1.
Firms are skeptical in information sharing. SMEs in India lack suitable IT infrastructure. Lack of proper decision support tools. Lack of trust and mutual understanding between supply chain partners.
2.
3.
4.
INITIATIVES NEEDED
?
Building understanding between supply chain partners. Frequent meetings, discussions are needed . Building of Robust IT infrastrusture.
?
?
CASE STUDY OF MARICO
?
A leading Indian group in Consumer products and services Renowned brands like parachute, saffola, KayaSkin Clinics Reach : 20 lac retail outlets
?
?
PROBLEMS
? ? ? ? ? ? ? ?
Increased competition More brands and products incur costs More forecasts to make More SKUs to track The distribution network became more costly and complex, exposing many process inefficiencies Forecast accuracy at 70% Frequent stock outs and loss of sales on 30% of Marico SKUs. Problem of excess inventory
The VICIOUS CIRCLE
Poor Data Visibility
Low forecast accuracy Unreliable and unresponsive production data
Long Planning Cycle
Skewing of sales
Stock out High delivery cost Low attention to small brands
Poor response to market dynamics
IMPLEMENTATON OF VMI
Marico would replenish the stocks on the basis of distributor’s online input of stocks to the retailers EARLIER:
Distributor place order Marico Replenish
WITH VMI:
Distributor
Replenish
Marico based on norms
RESULTS
?
Reduced sales skew and balanced distribution levels Decreased stock outs by 50% Reduced excess inventory at distributors Reduced supply chain handling costs by more than 60%
?
?
?
The Virtuous Cycle
Complete Data Visibility Improved forecast accuracy Short Planning Cycle
Reliable and Responsive production data
Uniform sales lesser Stock out Reduced delivery cost Equal attention to all brands
Fast response to market dynamics
THANK YOU!!!!!
doc_444202611.pptx
It also includes benefits of VMI to manufacturers and retailers. It includes case study of marico's implementation of VMI.
VMI – INDIAN RELEVANCE AND SCOPE
INVENTORY MANAGEMENT EVOLUTION
Owner Managed Inventory
Continuous Replenishment
Vendor Managed Inventory
Consignment Selling
Direct selling
VENDOR MANAGED INVENTORY (VMI)
VMI is essentially an integrated approach whereby the inventory at the distributor/retailer (downstream) is monitored and managed by the manufacturer/vendor (upstream) OR “A mechanism where the supplier creates the purchase orders based on the demand information exchanged by the retailer/customer”
VMI RATIONALE ….
By pushing the decision making responsibility further up the supply chain, the manufacturer/vendor will be in a better position to support the objectives of the entire integrated supply chain resulting in sustainable competitive advantage
VMI – WHY & WHAT
?
Collection and centralization of inventory data
?
Optimising Supply Chain performance
?
Collaborative supply chain initiative
?
Manufacturer has access to the distributors inventory data and is responsible for generating purchase orders
?
Manufacturer is responsible for maintaining the distributors inventory levels
VMI INCLUDES …
?
Determining appropriate order quantities
?
Managing proper product mixes
?
Configuring appropriate safety stock
VMI PROCESS TYPES
?
SIMPLE, STOCK INDUCED REPLENISHMENT: The vendor generates the purchase orders for his customer (example: retailer) based on the stock situation at the customers distribution centers ADVANCED, REQUIREMENT-BASED REPLENISHMENT: The customer forwards his actual sales data to the manufacturer, enabling the supplier to produce more accurate requirements forecasts and to respond to these requirements VMI WITHIN A REQUIREMENTS-ORIENTED REPLENISHMENT PROCESS: The manufacturer and the customer agree on the factors that determine the mid-term demand situation and improve the accuracy of the short-term replenished quantities this way
?
?
VMI - TYPES
Inbound
•Management of raw material inventories at your plant, by your manufacturer •Inventory measurements are often already available in real-time database •Can generally transfer data via VPN to central server for remote access by vendors •New sensors installed as required and interfaced to site database or a Remote Monitoring Unit
Outbound
•Management of product inventories at your customer sites, by your own personnel •Inventory measurements not usually available •Sensors collect data ( Remote Monitoring Unit) •Communication to central ERP system for remote access via dial-up modem, wireless, cellular, etc
CONVENTIONAL INVENTORY MANAGEMENT
?
Retailer/ Distributor
? monitors inventory levels ? places orders
?
Manufacturer/Vendor
? manufactures/purchases product ? assembles order ? loads vehicles
? routes vehicles
? makes deliveries
Problems with Conventional Inventory Management
?
Large variation in demands on production and transportation facilities Workload balancing
? ? ?
Utilization of resources
Unnecessary transportation costs urgent vs. nonurgent orders Setting priorities
? ?
VENDOR MANAGED INVENTORY
?
Retailer/ Distributor
? Trusts the vendor to manage the inventory
?
Manufacturer/Vendor
? Monitors customers’ inventory
? customers call/fax/e-mail ? remote telemetry units ? set levels to trigger call-in
? Controls inventory replenishment & decides
? when to deliver ? how much to deliver ? how to deliver
TYPICAL BENEFITS TO MANUFACTURERS
? ?
Lower inventory investments (raw and finished)
More freedom in when & how to manufacture product and make deliveries
More uniform utilization of resources
? ? ?
Better coordination of inventory levels at different customers
Better coordination of deliveries to decrease transportation cost Better Market Information
?
?
Promotions can be more easily incorporated into the inventory plan.
TYPICAL BENEFITS TO RETAILERS
? ? ? ? ?
?
?
Fewer stock-out with higher inventory turnover Better market information More optimal product mix Less resources for inventory management Assurance that product will be available when required The manufacturer is more focused than ever in providing great service. Planning and ordering cost will decrease due to the responsibility being shifted to the Manufacturer.
WHAT’S NEEDED TO MAKE VMI WORK
?
Information management is crucial to the success of VMI
? ? ? ?
inventory level data historical usage data planned usage schedules planned and unplanned exceptional usage
WHAT’S NEEDED TO MAKE VMI WORK
?
Accurate and timely forecasts of future demand Convince management that VMI will be beneficial, and that it can be implemented successfully
?
?
Convince customers that VMI will be to their benefit
Make good replenishment decisions - decision support
?
INVENTORY ROUTING PROBLEM
?
Plants
?
?
Products
Objective
? Choose a distribution
?
Drivers and Vehicles
Costs
? Transportation cost
? Revenue earned ? Shortage cost
?
policy that maximizes the expected total discounted value (rewards minus
? Inventory holding cost
costs) over a long horizon
INVENTORY ROUTING PROBLEM
?
Decision making: decide on a regular (daily) basis ? whom to deliver to ? when to deliver ? how much to deliver ? how to combine deliveries into routes ? how to combine routes into driver schedules
INVENTORY ROUTING PROBLEM
?
Important factors to take into account ? Likelihood of customer stocking out ? Consequences if customer stocks out ? Impact of today’s decisions on future situation ? Benefits of coordinating deliveries to close customers
VMI SUCCESS FACTORS
?
? ? ?
Top management commitment
Focus on effort Trust and partnership between supply chain stakeholders Highly effective computer/information systems (EDI, Bar coding, Scanning)
?
?
Competent manufacturers and the ability to forecast
Willing stakeholders partners and patience
TYPICAL VMI PROCESS
Problems identified in organizing supply chains in India 1.
Majority of Indian organizations have a weak alignment of supply chain strategy with business strategy.
2. Indian organizations considered IT tools as costly drivers and not enablers. 3. Organizations lack the supply chain mindset for supply chain partnerships. 4. Lack of understanding of towards the concept of business culture
Reasons for adoption of VMI
?
Stiff competition from multinationals
?
Shrinking product life cycle
?
global geographic spread
Obstacles in implementation of vmi
1.
Firms are skeptical in information sharing. SMEs in India lack suitable IT infrastructure. Lack of proper decision support tools. Lack of trust and mutual understanding between supply chain partners.
2.
3.
4.
INITIATIVES NEEDED
?
Building understanding between supply chain partners. Frequent meetings, discussions are needed . Building of Robust IT infrastrusture.
?
?
CASE STUDY OF MARICO
?
A leading Indian group in Consumer products and services Renowned brands like parachute, saffola, KayaSkin Clinics Reach : 20 lac retail outlets
?
?
PROBLEMS
? ? ? ? ? ? ? ?
Increased competition More brands and products incur costs More forecasts to make More SKUs to track The distribution network became more costly and complex, exposing many process inefficiencies Forecast accuracy at 70% Frequent stock outs and loss of sales on 30% of Marico SKUs. Problem of excess inventory
The VICIOUS CIRCLE
Poor Data Visibility
Low forecast accuracy Unreliable and unresponsive production data
Long Planning Cycle
Skewing of sales
Stock out High delivery cost Low attention to small brands
Poor response to market dynamics
IMPLEMENTATON OF VMI
Marico would replenish the stocks on the basis of distributor’s online input of stocks to the retailers EARLIER:
Distributor place order Marico Replenish
WITH VMI:
Distributor
Replenish
Marico based on norms
RESULTS
?
Reduced sales skew and balanced distribution levels Decreased stock outs by 50% Reduced excess inventory at distributors Reduced supply chain handling costs by more than 60%
?
?
?
The Virtuous Cycle
Complete Data Visibility Improved forecast accuracy Short Planning Cycle
Reliable and Responsive production data
Uniform sales lesser Stock out Reduced delivery cost Equal attention to all brands
Fast response to market dynamics
THANK YOU!!!!!
doc_444202611.pptx