1. VENDOR MANAGED INVENTORY How to Get the Best Results

2. Total Business Consulting Group, Inc. 2 Agenda What Is Vendor-Managed Inventory (VMI) Objectives Working Cases Preparation Information Systems Issues Assessment and Agreement Measurements

3. 3 What Is Vendor-Managed Inventory? Choose the correct answer: 1.Optimizes supply chain performance 2.Supplier has access to customer’s inventory data 3.Supplier is responsible for maintaining the inventory level required by the customer 4.The process is to resupply inventory by the vendor via scheduled reviews 5.All of the above

4. Total Business Consulting Group, Inc. 4 Vendor-Managed Inventories It has been an evolution: –Stock replenishment Retail –Consignment –Systems contracts Standard materials –Scrutinized inventory Vendor Customer A Customer C Customer B

5. Total Business Consulting Group, Inc. 5 Objectives Customer –Reduced inventory –Reduced operating costs –Total cost reduced Purchasing and administrative costs Fewer suppliers –Intangibles Shorter cycle time Greater customer satisfaction Supplier –Increased volume –Forces disciplines Measurements Communication –Better planning and resource use Visibility via information sharing –Need to eliminate or reduce non-value- added activities

6. Total Business Consulting Group, Inc. 6 Working Cases Retail –Corning –Wal-Mart (Quick Response Program) Industrial –Bose (unique planning) –Rohm-Haas (MRO) –Shamrock Supply (integrator) –Shell (unique) –Contract Manufacturing (various)

7. Total Business Consulting Group, Inc. 7 Preparation: Questions for Selecting Materials What are your intentions? –Reduce workload to concentrate on $$$ What are the critical materials/processes? –Need consistency and reliability Requires closer cooperation Which items/commodities have attributed to the greatest delays? What is important to your company?

8. Total Business Consulting Group, Inc. 8 Operational Practice Considerations Warehousing Alternatives –Supplier managed Automatic replenishment (owned or managed) –Best for reasonable degree of predictability –Appropriate directly to point of use –Two-bin or eyeball control levels – periodic Managed on customer site –Supplier personnel work as planners on customer behalf –Works best when customer has a “wide line card” –Utilizes customers planning/replenishment system BE AWARE OF DATA ACCURACY/MANAGEMENT!!

9. Total Business Consulting Group, Inc. 9 Information Systems Management Sharing information –How good are forecasts? Typically poor So what do you do? –Establish a “baseline” What do we plan for? –Need to review Who takes the lead? How often is this done? –When does this go away?

10. Total Business Consulting Group, Inc. 10 Information Systems (continued) Reliability of data –Control of activities How well do we know what’s happening in our processes? –Procedures, flows, people deployment Are we achieving what is intended? –Measurements of key areas On-hand inventory Stock outs Aging Aging

11. Total Business Consulting Group, Inc. 11 Assessment Process status –Under control? –Remember the pitfalls Record reliability Information sharing Lacking skill sets –What are the results? –What are the corrective actions?

12. Total Business Consulting Group, Inc. 12 Creating an Agreement Critical factors –Identify the items –Define the points of operational responsibility Storage, persons, quality, returns, etc.. Identify and monitor costs –Develop service level measures and note reports to be used What are the corrective action steps and timing?

13. Total Business Consulting Group, Inc. 13 Agreement (continued) Factors (continued) –Specify price escalators and de-escalator processes Price changes related to business conditions –Reference procedures to be used –Timing/duration –Periodic audits –Termination clause

14. Total Business Consulting Group, Inc. 14 Performance Measurements How to ensure VMI will enhance the business? –Establish measures – identify the goal Starting number of items vs. potential Inventory $ initially vs. potential Total inventory $ at start, during, and after –Respective inventory turns and days of supply

15. Total Business Consulting Group, Inc. 15 Measurements (continued) Operational improvements –Internal The number of stock outs and duration Cost of material/service before and after –External Customer satisfaction –Improvement of delivery availability –Other points as defined by the parties Competitive advantage considerations

16. Total Business Consulting Group, Inc. 16 What’s Next? Success –Three “Es” ExecutionEnergyExcitement –Pilot then expand Success breeds desire –Measure and adjust THERE ISN’T ANY LUCK, JUST THE OPPORTUNITY TO SUCCEED