Let the System Make You A Supply Chain Hero
Visibility Is The Key To A Successful VMI Implementation
How does a company achieve a 30% reduction in on-hand inventory without making the procurement team into superheroes?
Harvard Business Review reported that digital technologies will revolutionalize the supply chain as we know it. Enabled by technology; supply chains will become touchless and completely integrated with the ability to easily access and interpret high quality, real-time data. Real-time data will enable enterprises to improve inter-business processes, expand supply chain relationships, increase revenues, and reduce operating costs.
One part of the supply chain that will benefit from a strong digital foundation is Vendor Managed Inventory (VMI). Automated business process tools that utilize exception-based alerting to proactively manage the process enable you to eliminate errors, stock-outs, and emergency shipments. By automating the process, you can roll out standardized enterprise-wide VMI processes and inventory management controls, and scale your operation.
Recently, Elemica implemented this innovative approach at a global Fortune 100 CPG company. The client’s supply chain is complex consisting of Rail, Ocean, and Truck delivery segments with two intermediate warehouses and one international border crossing.
The key timing issue arose from forecast volatility. The Vendor lead time was 30 days yet the manufacturing forecasts and demands varied every 8 hours. This created the need for “Inventory Buffers” at each point in the supply chain. The VMI reality was that there were daily demand variations of 30% or more. The investment of semi-static buffer levels proved inadequate.
What was truly needed from a VMI visibility perspective, was a series of automated signals and responses throughout the supply chain that could trigger intermediate replenishments of varying amounts based on constraints and total demand flow. This lead to three primary requirements for success.
- Demand sensing – Kind of like the weather, if I could predict product demand with 100% accuracy, I would not be selling software. There are a plethora of data sources for this information, depending on the markets served and the manufacturer’s business model. Variations based on market conditions always result in variable forecasts, which are hard to control.
- Planning – Once again, many applications can turn the forecast into operational planning. This data element requires understanding manufacturing constraints, operation schedules, and a variety of internally generated activities.
- Execution – This is further described below, but, in the end, is it where the rubber meets the road.
The Largest Challenge is Execution
Once the buyers production schedule is set, it is up to the suppliers forecast into reality. The key to execution is full supply chain transparency, speed and visibility. Supply chain visibility does not rely exclusively upon internal information. Visibility relies upon regular real-time updates to inventory supply chain levels to be able to handle the inevitable variations that come from both the demand and planning phases of the VMI data flow. This is done typically by phone calls and emails.
Suppliers bear the financial burden of not meeting service levels. For over 20 years, buyers focused on the forecast volatility, requiring procurement professionals to be exceedingly creative in the way that they procure their goods.
Heroes are made every day in an unconnected supply chain.
Is there a better way? Yes, but not the one you may have expected. Enter now the “Digital Supply Network” or “DSN.”
Digital Supply Network for Execution
Digital Supply Networks (DSN) automate of the flow of sales orders, purchase orders, and logistics information between suppliers and customers. No matter what kind of system or technology connection is required, the DSN enriches the information to create “touchless” order creation, acceptance, and invoicing. The key concept is “touchless.” If the communication is repetitive, like a VMI process, then the order, shipment, and invoicing can be accomplished without any human intervention.
The innovation for the VMI process comes when you apply a “Demand Management and Digital Supply Network” at the supplier, instead of trying to fix the Buyer’s forecast. This is where the reality of demand volatility meets supplier VMI fulfillment capabilities.
The DSN on the supplier end moderates that volatility even further. The automated supply network using a DSN allows the systems to interact faster than humanly possible, enabling human “monitoring” instead of error-prone human “intervention.”
How We Partnered with the Client
The Elemica solution solved this issue. Several “triggers,” or resupply signals, were seamlessly connected via the Elemica DSN. This included information from including hand-held bar code scanners, signals from carriers, and RFID tagged pallets. The goal was to provide an automated pull-based system where the Elemica DSN and the Elemica VMI demand management application would instantly enrich any signal within the supply chain for appropriate actions at other points in the chain. Elemica worked with the client to determine what were the key data points that would enable an event and incorporate them directly into the VMI application.
Once implemented, each party learned to manage the appropriate inventory buffers and which metrics to monitor as they each strived for greater savings through automation. Over a short period, operations shifted to nearly 100% hands-free operation, and 30% reduction in overall stock levels and inventory variations, all without any manual intervention from the buyer forecasts without affecting consumer variability.
The measured benefits were financially dramatic. The Buyer enjoys increased service levels and visibility, while the suppliers enjoyed a minimum and maintainable inventory level and costs.