|
are examples of a more passive collaboration between the
customer and the supplier. Although some relationships in
the past feature more active collaboration with a text-book
style VMI, these are more an exception than the rule.
DemandPlanning.Net recommends its customers a modified VMI
that incorporates a more rigorous focus on promotional planning,
event modeling and sales-force oriented collaboration. Our
implementation of promotions-focused VMI will help you drive
better integration into your supply chain while achieving
your customer's stated goals.
|
| VMI
– Vendor Managed Inventory |
|
| The supplier
obtains the EDI transactions from the Customer for Sales, Shipments,
and Inventory on a daily or weekly basis through the EDI 852.
He may also get the sales forecasts through the EDI 830. But
typically the supplier generates his own DC level replenishment
forecast based on the historical data. Finally, the supplier's
VMI analyst may try to incorporate some promotional intelligence
into the forecast through discussions with the sales team and
in rare cases, with the customer's replenishment analyst. |
| VMI
Benefits |
 |
Person ordering, the VMI planner at the manufacturer, knows
the products. This translates into a more efficient replenishment
plan |
|
VMI results in efficient ordering and delivery of new products.
Because the DC level pipe-fill is known along with a reasoned
guess on the replenishment volumes, VMI provides a more accurate
forecast for a new product launch. |
|
More visibility into Customer inventory levels provide
better info to manage supply constraints. |
|
Increased sales at retail due to better in-stock levels. This
also results in Inventory Optimization for the customer. However,
note that the better in-stock levels assume that forecast volatility
is known through some sort of collaboration process or information-gathering
mechanism. (See this as an issue below.) |
| |
 a.
Improved DC In-Stock
b. Improved
Retail In-Stock |
|
Reduced customer administrative costs, since the replenishment
work is transferred to the supplier. This is purely a benefit
to the customer, but many a times this acts as a major catalyst
for the establishment of a VMI relationship. |
| VMI
– The Issues |
|
Long-term forecasts are still generated through
the supplier’s crystal ball. Because the customer does
not give much forecast guidance or intelligence on promotional
or market events, unexpected retail or inventory volatility
will hit in-stock levels. |
|
Little collaboration on the forecast (very
rarely) |
|
Customer gives you the data and the inventory
policy and the supplier does the rest! |
|
The success of the program rests on the supplier’s
creativity and initiative and a good internal consensus process
with sales staff on the field. |
| How
is Co-managed Inventory (CMI) different from VMI? |
|
CMI is similar to VMI except the supplier manages
the replenishment process and develops forecasts in the customer’s
system. A key example of this process will be the supplier process
adopted by Wal-mart as well as the JDA E3 process used by the
Drug Chains like Eckerd, Rite-Aid and CVS. |
|
Customer provides system access to the supplier |
|
Supplier has visibility to POS at the store level,
Store and DC inventory |
|
Supplier reviews info and generates order in
the customer's system |
|
The key difference is that order placed by the
supplier is still a recommendation and is not a firm order until
approved by the customer. In a VMI process, the order generated
by the supplier on the customer's behalf is a firm order to
deliver product and bill the customer. |
| There is a comprehensive
outline of a retailer CMI program at the
Kmart
web sites. |
| VMI
and CMI - The Challenge |
|
The traditional continuous replenishment process
(CRP) activity does not truly generate
a demand plan that can be integrated into the manufacturer’s
Supply Chain for production planning purposes. |
|
Too tactical and short-term oriented and typically
focuses on the next two to four weeks. |
|
More emphasis on order placement and replenishment
based on near term activity |
Although VMI
and CMI are constrained by criticisms of short-term focused
and being too tactical, in practice they have been very popular
because of their low cost to implement. The key is to leverage
the low-cost implementation while driving consensus and collaboration
and bringing the focus on promotional planning and management.
If you would like to find out more details on our modified
VMI model and implementation, please contact
us.
Some useful Links:
1. Some useful details on
EDI
Sets.
2. A software perspective
Demantra. |