Leverage information to remove cost and time from the supply chain, while delivering better service to the end customer

1. Vendor Managed Inventory (VMI) Leverage information to remove cost and time from the supply chain, while delivering better service to the end customer Anand Subramaniam

4. Inventory Management

5. Inventory Management Evolution Owner Managed Inventory Direct Selling Consignment Selling Vendor Managed Inventory Continuous Replenishment Time

6. Annual Inventory Carrying Cost ~ 26% Overall carrying cost 3% (2 - 5%) Pilferage, scrap, and obsolescence 11% (6 - 24%) Investment costs (borrowing costs, taxes, and insurance on inventory) 3% (3 - 5%) Labor cost from extra handling 3% (1 - 3.5%) Material handling costs (equipment, lease or depreciation, power, operating cost) 6% (3 - 10%) Housing costs (building rent, depreciation, operating cost, taxes, insurance) Cost as a % of Inv. Value Category

7. Strategic Alliance / Partnership

8. Customer / Manufacturer Partnership Quick Response (QR) Strategies Manufacturer receive POS data from retailers and use this information to synchronise their production and inventory activities with actual sales at the retailer. In this strategy, the retailer still prepares individual orders, but the POS data are used by the supplier to improve forecasting and scheduling and to reduce lead time Vendor Managed Inventory (VMI) Strategies Manufacturer decide on the appropriate inventory levels of each of the products (within previously agreed-upon bounds) and the appropriate inventory policies to maintain these levels Continuous Replenishment (CR) Strategies Manufacturer receive POS data and use these data to prepare shipments at previously agreed-upon intervals to maintain specific levels of inventory

10. VMI - Overview

13. VMI – Why & What VMI Manufacturer has access to the distributors inventory data and is responsible for generating purchase orders Collaborative supply chain initiative Manufacturer is responsible for maintaining the distributors inventory levels Optimising Supply Chain performance Collection & centralisation of inventory data Remote access to collected data Integration of inventory data & business systems

15. VMI – Business Model

16. VMI – Before & After Before VMI M any manufacturers operated stocking programs where a representative visited a customer a few times a month and restocked their supplies to an agreed-upon level After VMI Instead of the customer monitoring its sales and inventory for the purpose of triggering replenishment orders, the manufacturer assumes responsibility for these activities

17. VMI – Business Model VMI Business Model The manufacturer generates the order, not the customer. VMI does not change the “ownership” of inventory. It remains as it did prior to VMI The manufacturer is responsible for creating and maintaining the inventory plan The manufacturer can view every item that the customer carriers as well as true point of sale data The manufacturer receives electronic data (usually EDI or via the internet) that tells him the customer’s sales and stock levels

19. VMI – Types & Benefits

21. VMI – Customer Benefits Customer Reduced working capital Lower product purchase cost Reduced daily management of inventory stocks & orders Assured product supply Fewer distress purchases Lower planning and ordering costs Extended e-business capability Improved customer service levels Reduced demand uncertainty

22. VMI – Manufacturer Benefits Manufac-turer Automated ERP integration Lower customer service cost Increased customer loyalty Better forecasts and fewer consumer stock-outs Improved cash cycle reduced inventory levels Reduced logistics cost Fewer unprofitable sales New service opportunities Extended e-business capability

23. VMI – Implementation

24. VMI – Implementation Challenges Challenges Extensive testing of EDI Handling stock levels - over and / or obsolescence Learning curve User Acceptance Impact of random trade promotions / events Scope, KPI, role & responsibilities Technology capability Planner & buyer - trust relationships Contractual relationship