Vendor Managed Inventory (VMI) is a process where the supplier monitors customer information to keep the customer properly stocked with materials. VMI often gets a bad reputation because historically procurement departments use it to shift cost to the supplier.
This project was different. The overall objective was to reduce the number of manual changes to cross border orders in a 2-stage supply chain. Raw materials were produced in Northern Europe and shipped to Eastern Europe. Trucks transported material from a rail terminal to the manufacturing plant. Variations in their plant ordering practices caused the supplier to incur extra costs due to time-consuming SAP reversals and having to re-submit export paperwork. The added noise added inventory to the process.
The graphic above shows the results. At the beginning of the project an average of 2 rail order changes occurred per week with large inventory variations. Automating the process removed the manual changes and reduced inventory variation. Over the course of the project inventory was removed from the systems to optimize storage and working capital costs.
Click here to read more on best practices for running a successful VMI program in my article in the July issue of Inbound Logistics.