Thursday, August 21, 2008

Vendor managed inventory features

A Vendor Managed Inventory program implementation should include:

1. A way for the supplier to monitor the status of inventory at the customer site. This is often accomplished by sending electronic data interchange (EDI) transactions between the supplier's and customer's computer systems. Automated dispensers (similar to vending machines) are also utilized to record material consumption.
In order to determine when products should be replenished as well as the quantity that is needed, the supplier must have current information as to how much of each product is being consumed at the customer site, when stock receipts arrive, and other transactions that affect on-hand quantities.
The recalculation of replenishment parameters for each item at least once a month. These replenishment parameters include:
* For items with recurring usage: These are products that are sold or used on a regular basis. For each of these products, the supplier must calculate the anticipated demand of each product between deliveries along with a safety-stock quantity. The safety stock is reserve inventory maintained in case actual usage exceeds anticipated demand. Larger safety-stock quantities require a greater investment by the customer, but will help avoid stockouts of products whose actual usage is hard to predict. Good replenishment software can show the customer different inventory investments and the resulting service level – that is, a realistic estimate of the percentages of requests that can be completely filled from stock inventory.
The average inventory investment is the sum of the safety-stock investment along with the average value of inventory that will be on hand between deliveries from the vendor. Notice that a much greater investment is needed to increase the service level by a small percentage.
For items with sporadic usage: These products are used infrequently, and are typically maintained based on a multiple of the number of normal order quantities that should be able to be filled from stock inventory. The normal order quantity is the number of pieces typically sold or used at one time. For example, if the item is sold by the dozen, the normal order quantity would be 12 pieces, Typically, one normal order quantity will be maintained for each of these items, but two normal order quantities may be maintained for very critical parts. Again, this depends on the amount of money the customer is willing to invest in this type of inventory.
2.The normal time period between deliveries to the customer.
3. A method of transmitting collaborative forecast information to the supplier. Collaborative information is normally gathered from customers, salespeople, and other sources and reflects anticipated changes in future usage of products. Note that it is common practice for the customer to assume full responsibility for additional inventory delivered due to collaborative forecasts – that is, there is a handling charge if this speculative inventory must be returned.
The automatic return of material that has not been used for "x" number of months. Remember that under a VMI agreement a customer has purchased stock on the advice of the supplier. If that inventory is not used within six to nine months after delivery (and is not designated to be a critical repair part), the supplier should automatically issue a return-goods authorization and give the customer full credit for the return.

Guarantees of performance. When it enters a VMI agreement, a customer invests in a specific amount of inventory anticipating a forecasted service level for the products supplied under the agreement. But what happens if this service level is not achieved? For example:
* The supplier may not retain enough inventory to adequately replenish the customer's stock.
* The supplier may not replenish inventory as promised.
* The supplier's forecasting and replenishment system may not result in the agreed-upon service level.
If each partner concentrates on its core competences, both firms can increase their productivity and profitability.

9 comments:

Ecommerce shoppingcart said...

Hi,
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0s0-Pa said...

Which is why you mine as well check out the free inventory management software systems first and see if they are worth using or not. Then you can always upgrade as you see fit.
-Jackie

toystorecouk said...

I've started using a website called my inventory online and it's pretty good. There is a free account that you can play around with before signing up.

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