Vendor managed Inventory- Project

Definition:

 The vendor (supplier) manages the stock levels and availability

for the customer based on safety stock levels the as per the
agreed Terms & Conditions.

 Vendor Managed Inventory (VMI) is a planning and

management system in which the vendor is responsible for
maintaining the customer’s inventory levels.
Initiated by

 J Loganath – Purchase
 Strategic comparison – Buyers Vs Suppliers

Buyer Supplier

Eliminates the time and costs associated

with administrative tasks such as Increases market share by securing
managing replenishment parameters and all of a customer's business for the
issuing purchase orders. types of products it supplies.
Enhances the accuracy of inventory
replenishment planning by enabling
Can minimize required supply chain buyers to closely monitor the sales
inventory by 20 to 30 percent. Supply or use of its products at each
lead-time will be reduced customer's site.
Allows for additional time to focus on core
competencies and strategic, revenue- Better Customer relationship & co-
generating activities. ordination
Benefits of VMI
 Reduction in stock-outs and overall inventory level

 Improved supplier service

 Reduction in Lead-time

 Reduced Inventory carrying cost

 Reduced downtime due to waiting for raw-materials

Pitfalls in Implementing VMI
 Cost of developing VMI system

 Invoicing problems

 Over/Obsolete stock

 Sharing Confidentiality

 Vested Interest of replacing rather than repair – (If single

supplier is used for Service & supply)

 Supplier will claim VMI charges.

How do we manage the Pitfalls ?
 Cost of developing VMI system - We will Negotiate the Vendors
to set the VMI at his own cost.

 Invoicing problems – Supplier own a Hub near a factory and

they supply the materials in Delivery Challan & the Invoice will
reach us on the next day.

 Over/Obsolete stock – No Obsolete will happen as the

materials are pertaining to the particular model which we use.
Liability belongs to the vendor.

 Sharing Confidentiality – These Suppliers are our long term

business partner so the trust comes into play here.
How do we manage the Pitfalls ?
 Vested Interest of replacing rather than repair – (If single
supplier is used for Service & supply) – If the control process is
Fool proof this can be eliminated. Right now associates checks
whether the request raised by the service man is really worthy
& if yes he recommends to respective FPR & he cross verifies &
directs the request to Asst. manager & after approval the
request comes to me for Purchase.

 Supplier will claim VMI Operating charges – We will Negotiate

the Vendors to operate the VMI at his own cost.
Any Successful story of VMI
implementation at Madurai plant?

 Yes, We have started with “Fork lift spares “ VMI at

Madurai.

What problems did we face?

In 2008, the purchase value of Forklift spares was around

1.5lakhs. The business exposure of TVS & Mithun mitra was
44% & 56% respectively. The problem here was, the lead-time
of materials set by TVS was very high & the price set by
Mithun mitra was very high. So we were looking for an
enhanced solution to arrest those potential causes. The
breakdowns are frequent which lead to extended downtime
which affect the Order Service Time drastically.
Breakdown of Forklift - during Feb 09
Date Shift From To Break Down Hrs
04.02.09 1st Shift 6.00 9.00 3.00
06.02.09 2nd Shift 15.00 17.00 2.00
07.02.09 2nd Shift 17.00 19.00 2.00
10.02.09 2nd Shift 14.00 18.00 4.00
10.02.09 2nd Shift 23.30 25.50 2.20
11.02.09 1st Shift 12.10 13.45 1.35
16.02.09 2nd Shift 16.00 17.00 1.00
19.02.09 1st Shift 9.00 11.00 2.00
23.02.09 1st Shift 12.00 13.00 1.00
24.02.09 2nd Shift 14.30 17.00 2.70
25.02.09 3rd shift 5.00 6.00 1.00
26.02.09 1st Shift 11.25 12.25 1.00
Total 23.25
Business affected in 1Hr breakdown time of
the Forklift
 Average cases handled by a M/c per hour – 1200 cases

 No of cases affected per 23.5Hr (in Feb) = 1200 * 23.5

= 28200cases
What would be the solution for this?
The ultimate solutions for these problem were

 To purchase the Spares from the supplier who gives at a

reduced lead-time and at a reduced price than before.

 For reducing the downtime, we should have Optimum

inventory & it should be supplied at a reduced transit lead-
time.
Concept of material materialized

 We started negotiating with the vendor to reduce the

cost of the materials & supply them at improved lead-
time. This discussion ended in suggesting to implement
the concept of VMI for which the supplier has also
agreed. The added advantage is that this supplier has
already doing Weekly maintenance for us at Rs.6000/-
per week.
What advantage company has got in this?
 Inventory carrying cost in Forklift cost center will be Zero

 Liability of the spares inventory goes to the vendor

 We get special offer prices @ 10% discount on the unit prices

 Lead-time will be reduced drastically. Order Service Time

(OST) can be reduced from 12 hrs to 10 hrs.

 Downtime due to breakdown will be negligible.

 Less Operating tension in terms of Material availability &

breakdown.
PIP in Figures
 Reduced Inventory– Rs.6.35Lakhs inventory in Supplier’s
money

 Taking into account the last year Purchase value & 10%
discount which they offer, the tentative saving will be
Rs.15000

 Supplier sets the VMI at his own cost & he claims “Zero”
Operating cost on us.

 OST (Order Service Time) can be reduced from 12hrs to

10hrs.
Scope of expansion of the concept
 Bearing purchase

 Safety equipments

 Critical spares of Machineries (Boiler, DG, Filler, Case packer,

etc.,)

 (List will be updated when innovation strikes)