published 09/07/2022 By Michael W. Gozzo Purchasing 1,131 Views

This article will address the following approaches and practices that will permit you to successfully put into practice this powerful tool.

  • Reminder of Benefits
  • Needs/assessment
  • Implementation practices
  • Creating an agreement

Before we get started, it’s a good practice to learn from others. Identified below are some points to address/understand because they are situations that enterprises have encountered during the implementation that could have been avoided if known.

  • Inaccurate records
  • Lack of information
  • Not solving poor performance issues
  • Insufficient skills
    • Disciplines
      • Counting errors
      • Location controls
    • Measurements of performance to address the poor execution

    REMINDER OF THE BENEFITS:

    Let’s not forget why we want to do this. There are two (2) groups to receive the benefits:

    • THE CUSTOMER: THE BENEFITS ARE:
      • Reduced operating costs
      • Reduced inventory quantities & investment
      • Total Cost is reduced - including
        • Purchasing & administrative practices
        • Fewer suppliers (improved span of control)
      • Shorter cycle times for work efforts, greater satisfaction via improved service/performance by the supplier and the customers performance to their customers
    • THE SUPLIER: THE BENEFITS ARE:
      • Increased business volume
      • Forces the supplier to employ strong disciplines:
        • Doing performance measurement effort to improve practices that will impact performance
        • Creates more communication within and externally
      • Better planning and resource use. This will be done by utilizing information sharing
        • This will be accomplished by eliminating/reducing non-value-added activities

        NEEDS ASSESSMENT:There must be a review of the existence of various operating practices (both customer and supplier). The intent being to see if they are under control, for reliability of records, willingness to share data and where skills need to be provided.

        From this assessment there will be recording of findings along with respective corrective actions.

        This will now move into the next stage which is the Implementation phase.

        IMPLEMENTATION PRACTICES:

        • Develop a Plan, which includes orienting people, training them, organizing them into teams, and selecting a material/product to be “PILOTED”.
          • Pilot considerations should be drawn from the following list:
            • Annual purchase expenditure
            • Type material – standard vs. special
            • Length of lead-time
            • Storage needs
            • Frequency of demand (quantity of demand)
          • Importance of doing the PILOT:
            • Acts as a test of the process & people performance
            • Demonstrates confidence in “execution”
            • Helps select the next item to be done, by learning what went well or needs change/improvement
            • Shows to leadership via “QUICK RESULTS” that the methodology works
        • Plan needs to identify the respective activities that will be done – following a format of:
          • What, who, where, when & why – utilizing
            • Plan, Do, Check & Act
        • Establish a time frame to accomplish such
          • GOOD CONTROL = 3/6 MONTHS
          • POOR CONTROL = 9/12 MONTHS
        • Selection of a Project Team needs to consider the following:
          • Who needs to be involved:
            • Commodity buyer and planner; technical/quality-oriented person and finance.
          • Who is the strongest to lead the team – typically purchasing but must have ALL FACETS of strong leadership skills and understand all disciplines functionality
          • What the team will need is training in the following areas:
            • Teamwork, problem solving, inventory principles, Lean/JIT/TQM

            CREATING THE AGREEMENT:The critical factors to consider are:

            • Identifying the items involved
            • Defining the points of operational responsibility
              • Who does what – storage, accountability, quality, cost monitoring
            • Define the service level performance
            • What are actions associated with addressing errors and subsequent corrective action and their respective time allotments
            • Specifying price escalators and de-escalators
              • Related to business conditions and economy references – CONSUMER PRICE INDEX (CPI)
            • Reference procedures to be used
            • Employment of periodic (timing defined) audits
            • Duration of agreement
            •  A termination clause

            The above information gives a clear pathway to establish a VENDOR/SUPPLIER MANAGED INVENTORY PROGRAM (V/SMI).