SUPPLY CHAIN MANAGEMENT, A

STRATEGIC TOOL FOR ACHIEVING

BUSINESS GOAL -
INVENTORY MANAGEMENT STRATEGY
Presented by

PHIDELIS EBLEDZI (MILT)

(Integrity Logistics & Educ. Serv. Ltd)
Introduction
CPFR
Vendor managed inventory
Just-in-time
Co-managed inventory
Kanban
Batching economies
Postponement
Efficient Customer response (ECR)
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 Every management
mistakes ends in
inventory
Michael C. Brown

CRITICAL REFLECTIONS FOR THE DAY

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 Inventory is a stockpile of raw materials,
supplies, components, work-in-progress,
and finished goods that appear at the
various points throughout a firm’s
production and logistics channel.
 A major issue in supply chain inventory
management is the coordination of
inventory policies adopted by various
supply chain actors.
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To act as a buffer against uncertainty
in the supply chain.

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To achieve satisfaction levels of
customer service whilst keeping
inventory costs within reasonable
bounds.

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 Inventory Management Strategy
 A set of techniques used to manage
inventory levels within different
companies in a supply chain.

 Effective management of inventory in

supply chains is one of the key factors
for success.

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 Inventory management is developed
around two basic philosophies:
• Push approach; and
• Pull approach
 Two key variables lie at the foundation
of inventory control policies:
• the quantity to be ordered; and
• the interval at which orders should be
placed.
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What is Collaborative Planning,
Forecasting, and Replenishment
(CPFR)?

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 CPFR is a business practice that
combines the intelligence of multiple
trading partners in the planning and
fulfilment of customer demand.
• Links sales and marketing best
practices to supply chain planning and
operational processes.

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To increase availability to the
customer while reducing inventory,
transportation and logistics costs.

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The CPFR process is divided into
three main activities:
Collaborative planning;
Collaborative forecasting;
Collaborative replenishment;
Collaborative planning.

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 Kimberly Clark
SARA LEE
JCPenney
with support from...

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 Three Modes of CPFR
 Basic CPFR
• A limited number of business processes integrated
between a limited number of supply chain partners.
 Developed CPFR
• Involve a greater number of data exchanges between
two partners; and
• It may extend to suppliers taking responsibility for
replenishment on behalf of their customer.
 Advanced CPFR
 goes beyond data exchanges to synchronise
forecasting information systems ;and
 coordinate planning and replenishment processes.

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 CPFR Scenario Where Applied in SC Industries Where Applied
Highly promoted All industries other
Retail event
channels or than those practiced
collaboration
categories EDLP
DC replenishment Retail DC or Drugstores, hardware,
collaboration distribution DC grocery
Direct store
Store
delivery or retail Mass merchants, club
replenishment
DC-to-store stores
collaboration
delivery
Collaborative
Apparel and Department stores,
assortment
seasonal goods speciality retail
planning
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 VMI is a planning and management
system in which the vendor is
responsible for maintaining the
customer’s inventory levels.

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Supplier manages the stock levels and
availability for the customer based on safety
stock levels as per the agreed terms and
conditions.

Upstream demand visibility is improved to

reduce the impact of demand fluctuations.

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Pushing the decision making responsibility
up the supply chain, the vendor is in a
better position to support the objectives
of the entire supply chain resulting in
sustainable competitive advantage.

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 It is based on trigger point replenishment
programme.

 Inventory levels below the reorder point

automatically trigger replenishment order.

 The sharing of POS information is key to

making continuous replenishment work in a
timely and efficient manner.

 Information flows to the vendor through an

EDI or other electronic network.
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 Application of VMI

Adapted from Matthias et al., 2005

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 JIT is a philosophy concerned with the
elimination of all waste, not only within
the firm but right along the firm’s supply
chain.

 The basic philosophy of JIT is summed up

in the phrase ‘inventory is evil’.

 JIT works effectively in an environment of

continuous flow production.

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 Just-in-time (JIT) Approach
MV Organization
MV Organization
a b

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 High quality – zero defects;
 Zero inventory;
 Short delivery and production lead
times; and
 Small frequent replenishment
quantities.

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 Reduced stock levels;
 Reduced and consistent lead times;
 Higher quality;
 Improved responsiveness and
flexibility; and
 Better customer service.

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 It is an arrangement under which a
specific quantity of a consumable item
is stored at a customer's premises.

 Upon its consumption or depletion, the

item is replaced by the seller, with the
consent and knowledge of the
customer.

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 Kanban is a card based control system for
coordinating and controlling the
movement of material to feed the
production line.

 It uses standardized containers, lot sizes

or workshop floor located between two
stages of a production process with a card
(Kan and Ban) attached to each.

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To deliver materials in the exact amounts
at the exact times they are required, with
zero waste of materials or production
time.

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 Respond more quickly to changes in;
 Lead times are highly predictable because
they are short;
 Order quantities are small because setup
and procurement costs are kept low;
 Few vendors are used, with
correspondingly high expectations of
them.

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 Batching arises from three sources:
 Acquisition/purchasing economies;
 Production/manufacturing; and
 Transportation.
 Scale economies are associated with all
the three sources.
 Effect of scale economies is the
accumulation of stock that will not be
used or sold immediately.
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 It refers to the delay of product
differentiation until closer to the sale of
product.
 All activities prior to product differentiation
require aggregate forecasts that are more
accurate than individual forecasts.
 It brings significant increase in profits and
reduction of inventory if supply chain can
postpone product differentiation until
customers orders are received.
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 ECR is a time-based approach to
replenishment logistics that
emphasizes inventory visibility and
velocity to achieve lower cost and
better customer service.

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 Change
management

Replenishment
Replenishment
Integrated EDI
Promotion Continuous replenishments
Manufacturing Computer-assisted ordering Promotion Retail business
business Flow-through distribution strategy
strategy Store assortment Store assortment
Activity-based costing
Product introductions Category management Product introductions
Flexibility

Open
communication

Adapted from Crawford, 1995

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 Summary and Conclusion
 Inventories continue to represent a major
use of capital in the supply chain channel.
 Good management means keeping them at
the lowest possible level consistent with a
balance of direct and indirect costs related
to their level and with the need to maintain
a desired level of products availability.

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