2. Continuous Replenishment Programme (CRP)
GOALS:
 Focus on efficient replenishment of  Increase inventory turns
products  Reduce inventory levels
 Part of Efficient Consumer  Decrease stock-outs
Response (ECR) arena  Improve customer service
 Improving the flow of products in levels
 Boost warehouse efficiency
the supply chain
 Enhance trading partners'
perception of value
Vendor Managed Inventory (VMI)
 Manufacturer decides when to
OBJECTIVES:
replenish Increase in-stock inventory
 Usage of automatic electronic Increase sales
messages Improve customer service
 VMI implementation in industries Increase gross margins
like, department Reduce overall inventory in
stores, apparel, automotive and the supply chain
paper manufacturing Stabilize vendor's production

3. Vendor Managed Inventory (VMI) model
From the supplier's perspective, a VMI model generally entails:
1. Receiving stock levels from a customer
2. Receiving sales forecasts from a customer
3. Generating replenishment orders when needed
4. Sending dispatch advice to a customer
5. Receiving sales reports from a customer
6. Sending invoices to a customer.
Fig. A two stage VMI supply chain

4. Information Flow
Inventory levels – From distributor to Sales history – From distributor to
manufacturer manufacturer
 The current stock quantity The quantity sold over the last
 The quantity in order period
 The quantity reserved for some The number of sold lines
customer orders Forecasts can also be provided
 The backorder quantity (stock out) by the distributor
Order proposal – From
manufacturer to distributor
The Ship To location
 The order quantity
Manufacturer Inventory Level Distributor Final
Sales history Customers
Order Proposal Final
Purchase Order Customer
Order need
Acknowledgement
Delivery

5. Benefits
Supplier benefits:
 Visibility to the customer's point-of-sale data simplifies forecasting.
 Promotions can be more easily incorporated into the inventory plan.
 Customer ordering errors are reduced.
 Stock level visibility helps identify priorities (replenish stock versus a stockout).
 The supplier can see the potential need for an item before the item is ordered.
Customer benefits:
 Fill rates from the supplier, and to the end consumer, improve.
 Stockouts and inventory levels often decrease.
 Planning and ordering costs decrease since the responsibility is on supplier.
 Overall service level is improved by having the right product at the right time.
 The supplier is more focused than ever on providing superior service.
Dual benefits:
 Data entry errors are reduced due to computer-to-computer communications.
 Overall processing speed is improved.
 Both parties strive to offer better service to the end consumer.
 A true collaborative partnership is formed between the supplier and the
customer

7. VMI implementation for a
Global Energy Management
Specialist

8. Mission •Help our customers to achieve more while using less
of our common planet
•Safe
Goals •Reliable
•Efficient
•Productive
Business •Power and Control
•Energy Management

9. • Common goal to improve services to end-
customer
Dual Benefits • Partnership leading to strong and long-term
ties between distributor and manufacturer
Distributor • Decrease in stock-outs and inventory levels
Benefits • Reduction in planning and ordering cost
• Visibility of the Distributor’s Sales data makes
forecasting easier
Manufacturers • Promotions can be more easily incorporated
Benefits into the inventory plan.
• A reduction in Distributor ordering errors

10. Inventory Sales Order
levels history proposal
Daily Monthly
Daily or set days of a
Current stock week
quantity Quantity sold over
the last period
Quantity in order
References and the
Number of sold lines
Quantities for
Quantity reserved ordering
• The Ship-to-location
Forecasts from
Backorder quantity • The order quantity
Distributor

11. The savings identified at the beginning of the project were met
With a comparable level of product availability the stock coverage strongly
reduced
Right products were put on the shelves of the distributor leading to better product
turn-over
Clear workload reduction was visible
Due to improvement in forecasting it was then acceptable to update the stock
parameters every two months instead of every month.
The reduction of training needs was also very clear

12. VMI implementation for a
Global Energy Management
Specialist

13. World’s largest manufacturer of heavy-duty diesel engines
Supplies the entire Volvo group with driveline components
Employees approximately 8000 people
Operations in Sweden, France, Brazil and US
Production is Customer based
Identified VMI is an efficient tool to lower inventory level and improve
relationship with its suppliers

14. Pipechain VMI software was employed
Cover days of stock lowered from seven days to three days
Inventory reduction of 67 percentage
Reduced administration costs
High supplier satisfaction
Decrease in set-up time

15. VMI implementation for a
Global Energy Management
Specialist

16. Part of Orkla Group
Nordic region’s leading supplier of manufactured food products
for grocery trade
Annual turnover over 3 billion SEK
1500 Employees
Headquartered at Eslov, Sweden

17. Service levels have gone up from 94% to 98%
Inventory Level has been decreased by 30%
Order processing cost has declined by 40% throughout supply
chain
More efficient production planning
Easier for co-planning and optimizing set-up times

18. With cases from the Indian
market

19.  A step beyond just-in-time (JIT) in the
manufacturing scenario
 Consumables procurement
 practicing VMI between the needle supplier and apparel
manufacturer will result in negligible cost and space savings
for the manufacturer
 Accurate prediction by the vendor of
merchandise quality and quantity
 A sewing thread supplier can decide on the
type of thread and calculate fairly accurately
the quantity required based on the fabric
swatch and apparel sample

21. Challenge • Controlling sewing thread inventories
• The manufacturer alone would calculate and order
Pre VMI the total quantity of thread, with any surplus or
Process shortage being the manufacturer's problem
• The onus of any surplus or shortage was shifted totally to
Strategy the thread supplier
• The demand pattern (based on the production
schedule) was shared with the thread supplier
• Barring some standard colour like white or black,
thread is a perishable item so the thread supplier
Result withdrew from the arrangement
• Under the new risk sharing arrangement the cost of
dispute/surplus quantity of thread is being shared by
both the thread supplier and apparel manufacturer

22.  The manufacturer blocks
certain quantities of thread
with the thread supplier, The thread supplier avoids
 who then maintains the complicated reverse entry of
thread inventory and goods if there is a surplus
delivers products just-in-  The manufacturer avoids
time when required by the being left with surplus
manufacturer stock, while guaranteeing
 Blocking thread quantities is against out of stock
only valid for a certain
period of time, after which  The responsibility for
the thread supplier is free to calculating the correct
sell the thread to other quantity still remains with the
manufacturers manufacturer
Geographical proximity between both companies

23.  Products like zippers and needles were also
explored but manufacturers felt these were too
insignificant to experiment with
 While exploring similar arrangements with sewing
machine spare parts suppliers in India it was found
that similar practices are being exercised with a
few large apparel manufacturers for selected high
priced machines.

24.  Absence of large apparel manufacturers, the driver
of VMI implementation
 There is an absence of major machine manufacturers
 According to Professor Sunil Chopra, VMI should only
be implemented in cases where the
manufacturer/vendor can forecast demand more
accurately than the distributor/retailer
 VMI presupposes EDI between the trading
partners, since an absence of the EDI infrastructure
will make the "time gain" factor difficult to appreciate
(and convert to a cost advantage) by partners
 The emphasis is on the relationship, and the software
merely automates the demand analysis. The sales tax
and other procedural complexities may need to be
simplified if there is to be a smooth flow of material
and information between partners

25. Some examples of
companies which chose to
implement VMI

26. K-Mart Fred Mayer Walmart and P&G
•Customer service •Reduced inventories •Have had a VMI
measures have gone 30-40 per cent program together for
from the high 80s to the •Service levels increased over ten years to
high 90s to 98 per cent manage the inventory
•Inventory turns on •VMI implemented with and production of
seasonal items have two key food vendors disposable
gone from 3 to diapers, with great
between 10 and success
11, and for non- •Turnover doubled
seasonal items from 12- •Wal-Mart's operating
15 to 17-20 costs fell
•P&G's market share
grew (because Wal-
Mart gave it preferred
shelf space)

27. How to measure success of a
VMI implementation
What are the major challenges
in implementing the VMI
What are the possible pitfalls in
implementing the VMI