published 08/10/2022 By Michael W. Gozzo Purchasing 1,071 Views

WHAT IS THIS TOOL?

This tool has been around for many years. It has evolved since the early 20th century. It was a stock replenishment methodology for retail enterprises. It then evolved into “System Contracting” methodology for standard materials (hardware, food etc..).

It is being employed primarily by distributors to aide their customers – but only a few have employed it well. It’s practical process methodologies make it a powerful tool in enterprises needing improvements to ensure better performance with their customers.

V/SMI intent is to provide benefits to both the customer & the supplier.

  • CUSTOMER BENEFITS:
    • Reduced inventory
    • Reduced operating costs
    • Total Cost reduced
      • Fewer suppliers
      • Purchasing & administrative costs
    • Intangibles
      • Shorter cycle time
      • Greater customer satisfaction
  • SUPPLIER BENEFITS:
    • Increased volume
    • Forces disciplines
      • Measurements
      • Communications
    • Better planning and resource use
      • Visibility by resource sharing
    • Need to eliminate or reduce non-value-added activities

    This looks phenomenal! Why aren’t more organization employing it?

    Today’s supply chain issues are forcing us to look at more reliable methods that can be readily employed. However, the initiative must come from a group of functions with the knowledge of how to do such.

    It’s an old practice that was employed by few organizations that never touted the benefits because of minimal publicity and few publications. We will describe through a series of articles how to get to the successful employment of this tool.

    Little known successful applications:

    • RETAIL:
      • Corning
      • Wal-Mart (Quick Response Program)
    • INDUSTRIAL:
      • Santa Cruz Boardwalk Enterprises
      • Bose (Unique Planning)
      • Rohm-Haas (MRO)
      • Shamrock Supply (Integrator)
      • Shell (Unique)
      • Contract Manufacturing (various)

      QUESTIONS: We need to ask ourselves some questions before proceeding:

      • What are our intentions?
        • Reduce workload to concentrate on high-cost items?
        • Reduce inventory and cost of business?
      • What are the critical materials/processes?
        • Need consistency and reliability
          • Requires closer cooperation
      • Which items/commodities have attributed to the greatest delays?
      • What is important to your enterprise?

      THE ANSWERS TO THSE QUESTIONS WILL AIDE IN DETERMINING THE MATERIALS TO FOCUS OUR EFFORTS FOR ITEMS TO BE SELECTED FOR APPLICATION TO V/SMI

      • What are your planning options?
        • It is a function of the type of business you are in:
          • A manufacturer – then you most likely would be using one of the following:
            • MRP (material requirements planning if you are building a product with multiple levels of a BOM (bill of material)
          • A Distributor – using DRP (Distribution Requirements Planning) if you have several distribution sites. Or more simplified – few sites manageable by employing ROP (reorder point) or Min/Max or Kanban
          • A Service enterprise typically uses ROP or MIN/MAX

          KNOWING THE ANSWERS TO THE PLANNING WILL PROVIDE US INCITE ON HOW MUCH TO PROJECT IN USE QUANTITY AND THE FRQUENCY OF RELEASES WITH THE SUPPLIER

          PRACTICES TO CONSIDER AS ELEMENTS OF PROGRAM:

          • OWNERSHIP OF MATERIALS:
            1. Options
              1. Customer owned upon delivery of materials – most popular from the supplier’s viewpoint
              2. Supplier owned until consumed (Consignment)
                1. SUGGESTED APPROACH – Minimizes customer inventory investment BUT establishes investment risk (duration) on supplier. This may require certain usage guarantees by the customer
          • TRANSACTIONAL CONSIDERATIONS:
            • Low Value Items
              • Minimize paper
              • Utilize electronic
            • Higher Value Items
              • Use 80/20 rule to determine volumes/value of materials
              • Audit record accuracy accountability
            • Materials Labeling
              • Utilize auto-id methodologies
                • Bar-coding
                • Electronic sensors/chips
              • Determine data needed
          • INBOUND FREIGHT – HANDLING
            • Proximity – within a short distance is the source of supply
              • Consider a short delivery time frame – 15 minutes
            • Supplier manage materials within your warehouse
              • Minimizing handling labor via your personnel
          • INFORMATION SHARING
            • Forecast of demand – need to identify how accurate
              • Establish a baseline for subsequent measurement
              • Frequency of review to see where corrective action needs to be taken
              • Mutual agreement mentality on corrective actions and resultant number use
            • Measurements of activities
              • Establishing & sharing operating procedures/practices
              • Measuring – on hand accuracy, stock-outs
              • Ageing analysis

            Look for the subsequent series:

            1. How to Implement Vendor / Supplier Managed Inventory
            2. Vendor/Supplier Managed Inventory: How to Maintain the Results