i2 u intelligent supply chain management course module twelve: inventory deployment

i2 UIntelligent Supply Chain Management

Course

Module Twelve:Module Twelve:Inventory DeploymentInventory Deployment

2© 2001 i2 Technologies Inc CONFIDENTIAL

Supply Chain Management Key Processes

Sales & Operations Planning

Demand Planning

Inventory Planning

Supplier Scheduling

Production Scheduling

Inventory Deployment

Transportation Scheduling

Demand Fulfillment

Supply Chain Execution Monitoring

Strategic Supply Chain

Planning

Master Supply Planning

Procurement

Production Distribution

Transportation

Impact of decisions

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Spec

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by in

dust

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Reaction to changing supply conditions


After Completing This Module,You are Expected to:

Define the goals of the Inventory Deployment process Understand the logic, objectives and limits of the Vendor

Managed Inventory (VMI) approach for inventory deployment Explain the benefits of a constraint-based VMI process Understand the need to monitor a VMI process through a

forecast consumption logic Understand the logic of an auctioning process executed

through an electronic marketplace Identify Inventory Deployment key enablers and their

resulting business value Identify Inventory Deployment excellence criteria


Inventory Deployment Process Positioning

hou

rs

days

wee

ks

mon

ths

year

+

buy

make

move

sell

store

operational tactical strategicscheduling


Inventory Deployment Process Goals

Ensure proper replenishment of inventories consumed or moved in the Supply Chain pipeline so as to respect inventory policies

In case of limited supply capabilities, ensure that inventory is deployed in priority to preferred channels / customers

Facilitate the replenishment process to customers by taking the responsibility for the replenishment process (VMI - Vendor Managed Inventory)


VMI Defined

Company compares inventory level, safety stock level, expected consumption and in transit to generate

replenishment orders

2

Customers send inventory and consumption information1

3Products are moved on the basis of the

replenishment orders

The customers receive the

products without having placed

any order!4


VMI Typical Benefits

Periodic Re-order Point System Vendor Managed Inventory

CustomerInventory

0

Higher probability of stockouts (i.e., lost sales opportunities

time

Higher Inventory Level

Lower Inventory Level

Lower probability of stockouts

Manufacturer Logistics& Supply

Inventory Management

KeyCustomer

Handoffs between vendor and customer increases costs

ManufacturerLogistics &

Supply Through VMI

KeyCustomer

Consolidated inventory responsibility lowers costs


The Rise and Fall of VMI

1980s: Development of stand-alone VMI software solutions

Retailers encourage their suppliers to become VMI suppliers (for obvious reasons!)

1990s: VMI suppliers face a severe inventory increase to be able to support the process


The Problem With Stand-Alone VMI Solutions

Supply Chain constraints are not considered when replenishment orders are generated (assumes 100% product availability)

Inability to assign limited inventory quantities in priority to preferred customers


Gartner Group Assessment on VMI Evolution

“… unless VMI data is incorporated into the forecasting and

planning loop, inventories and other costs may rise rather

than fall when VMI is implemented ….”

“Lack of back-end integration is a prime reason that VMI

firms fail to experience significant benefits.”

“Manufacturers can gain a competitive advantage from VMI

in a number of ways, including integrating VMI information

back into the planning stages, thus making manufacturing

and deployment activities more efficient and increasing

margins.”

Beth Enslow, Gartner Research Note, 1999Beth Enslow, Gartner Research Note, 1999


Constraint-Based VMI Solution vs. Traditional Stand-Alone VMI

By simultaneously considering all inventory and capacity constraints, a constraint-based VMI solution DOES NOT ASSUME 100% Inventory Allocation.

By considering all possible alternates when inventory allocation from primary source is not 100%, a constraint-based VMI solution enables to maximize customer service.


2 3 4 5 62 3 4 5 611PERIODPERIOD

FORECASTFORECAST

PROJECT.PROJECT.STOCKSTOCK

FUTUREFUTURESUPPLYSUPPLY

55

1010

1515

1010

2020

55

-5-5

Phase 1: Definition of the consumption periodPhase 1: Definition of the consumption period

1515

55

2525

1212

2020

1010 1010

1010 1010

1313 1313 1313

Consumption Consumption periodperiod

VMI ORDERVMI ORDER

VMI Prerequisite:Monitoring Through Forecast Consumption (1/3)


2 3 4 5 62 3 4 5 611PERIODPERIOD

FORECASTFORECAST



55

1010

1515

1010

2020

55

-5-5

Phase 2: Consumption of the forecast by VMI generated Phase 2: Consumption of the forecast by VMI generated replenishment ordersreplenishment orders

1515

55

2525

1212

2020

1010 1010

1010 1010

1313 1313 1313


VMI ORDERVMI ORDER 1212

00 1818

VMI Prerequisite:Monitoring Through Forecast Consumption (2/3)


2 3 4 5 62 3 4 5 611PERIODPERIOD

FORECASTFORECAST



55

1010

1515

1010

2020

55

-5-5

Phase 3: If the sum of the replenishment orders exceeds the Phase 3: If the sum of the replenishment orders exceeds the remaining forecast, an alert is sent to the plannerremaining forecast, an alert is sent to the planner

1515

55

2525

1212

2020

1010 1010

1010 1010

1313 1313 1313


VMI ORDERSVMI ORDERS 2020

00 00 1212

VMI Prerequisite:Monitoring through Forecast Consumption (3/3)


A New Perspective in Inventory Deployment Enabled by the Internet: Auction Management

Customer cancels a large

order

1Company analyzes inventory projected

balance on hand and identifies

obsolescence or price erosion risk

2

Excess Stock is proposed through the Internet to a community of potential

buyers with opening price and closing time

3

Buyers place their bids

4100

110

90

After closing time, the company sells the

product to the highest bid

5


Inventory Deployment Process Excellence Criteria

Whenever possible, VMI processes are implemented with customers. The quality of the data received by the customer is constantly monitored.

Root cause of poor data quality is analyzed jointly with the customer. VMI replenishments are based on adequate reorder point quantities, which

are reviewed continuously. VMI replenishment orders are generated taking into account supply

limitations. The allocation rules are aligned with the company’s priorities. Customers are immediately notified of any short or late replenishment.

Electronic auctions are used whenever a short term decrease in demand generates a risk of inventory obsolescence or price erosion.

When customer deliveries are triggered by a VMI process, they are properly integrated with the standard order fulfillment process. In other words, ATP figures are consumed once a VMI replenishment order is released, and a monitoring/authorization process defines the steps required when a such an order generates a negative ATP figure.

i2 u intelligent supply chain management course module twelve: inventory deployment

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