Vendor Managed Inventory (VMI)
VMI is a distribution channel operating system whereby the inventory at the distribution / retailer is monitored and managed by the manufacturer / vendor. It includes several activities, including determining appropriate order quantities, managing proper product mixes, and configuration appropriate safety stock levels. VMI is also called QRIS or the Quick Response Inventory System. Lead time reduction is the direct benefit of ECR. It eliminates the need for paper transactions. Using the mail, overnight deliveries fax and EDI in the QR system reduces lead time. The vendor’s computer acquires the data electronically; no manual data is required at the recipient’s end, which helps in reducing the lead time and in eliminating the vendor’s recording errors. It increases the product availability and lowers inventory investments and also helps in reducing logistics expenses. With QR systems retailers can negotiate a direct store delivery system in which the vendors do floor ready merchandise to each store rather than to the Distribution Center (DC). The cost of the DC and transportation can thus be eliminated. Centralizing the replenishment decision also helps reduce the distortions in ordering introduced when there are several intermediaries that place orders in a supply chain.
VMI is typically the opposite of the inventory management, approach taken by most organizations toady. Currently orders are pulled through the supply chain by each partner as inventory levels reach replenishment / re-order points. This historic approach only serves to incentivise channel partners to optimize their individual link in the supply chain at the expenses of sub-optimizing the overall supply chain. VMI on the other hand works in the reverse to link partners together and to grant authority to the partner who is in the best positions to make inventory replenishment decisions. This entity is usually the mfg / vend partner given its up stream position in the channel.
Collaborative planning forecasting and replenishment (CPFR)
Collaborative planning forecasting and replenishment (CPFR) has been defined by Larsen as a collaboration where two or more parties in the supply chain jointly plan a number of promotional activities and work out synchronized forecasts, on the basis of which the production and replenishment processes are determined.
The term CPFR was first introduced in 1995, in connection with a pilot project between Wal-Mart Warner Lambert, Benchmarking partners, SAP and Manugistics. A few years later in 1998 the Voluntary Inter industry Commerce Standards (VICS) committee, a group dedicated to the adoption of bar coding and EDI in department store /mass merchandise industries developed a nine step process model as a guideline for CPFR implementation.
Collaborative planning Forecasting and replenishment (CPFR) practices span many disciplines, from merchandise planning to supply chain management (SCM). The objective of CPFR is to better align supply and demand through trading partner data interchange exception based management and structured collaboration to eliminate issues and constraints in fulfilling consumer expectations.
There are many challenges to keep in mind when implementing CPFR. These include:
1) Selecting partners and products with which to implement CPFR.
2) Establishing the discipline to regularly measure performance.
3) Committing to implement CPFR on a broad scale.
4) Aligning corporate philosophies with CPFR philosophies
5) Managing organizational changes that may be required.
One of the biggest hurdles is the resistance to change and to moving beyond the comfort of established business processes. In order to overcome this, companies and to show their employees how the process changes will be an improvement over the status quo.
The voluntary Inter industry Commerce Standards (VICS) Association first published the VICS collaborative planning Forecasting and replenishing (CPFR) guidelines in 1998. In the short time since CPFR has been acknowledged as a best practice in business to business (B2B) commerce. In 2002 as multinational corporations deploy CPFR practices in international markets and organizations around the world work to enhance the CPFR model, global standard recommendations for CPFR have become necessary.
The guiding principles developed or Collaborative Planning, Forecasting and Replenishment are:
1) The trading partner framework places the operating process focus on consumers and orients them toward value.
2) Trading partners mange the development of and agree upon a single shared forecast of demand that drives planning across he value chain.
3) Trading partners jointly commit to the shared forecast through risk sharing in the removal of supply process constraints.
The CPFR process begins with an agreement between the trading partners to share information with each other and to collaborate on planning with the ultimate goal of delivering products based on true market demand. The nine steps sited out are:
Step 1: Establish a Collaborative Relationship
Step 2: Create a Joint Business Plan
Step 3: Create a Sales Forecast
Step 4: identify exceptions for sales forecast
Step 5: Resolve/ Collaborate on exception items
Step 6: Create Order Forecast
Step 7: identifying Exceptions for order forecast
Step 8: Resolve / Collaborate on Exception Items
Step 9: Generate Order
The final plan agreed to by both describes what’s going to be sold and how it will be merchandized and promoted.