Taking Stock
Vendor managed inventory (VMI) solutions are changing the rules of business for select CG companies and their customers. Increased service levels, improved forecasting and clear visibility into the supply chain are some of the benefits generated by VMI solutions. In some cases, VMI is not only deemed a necessary tool for optimizing supply chain performance, but also to protect corporate shelf life.
A SIMPLE PLANNER
Leiner Health Products, Carson, California, is one of the world's largest private label manufacturers of vitamins, minerals, nutritional supplements and over-the-counter pharmaceuticals, supplying customers like Wal-Mart, Sam's Club, Costco, Eckerd Drugs, Kroger, Rite Aid, Safeway, Target and Walgreens. A re-structured value chain has created a paradigm shift, transforming somewhat adversarial clients into strong partners that work together to effect higher throughput and sales, lower inventory and reduced lead times. Leiner uses a suite of tools from i2 Technologies to collaborate on demand, gain forecast consensus, optimize the manufacturing supply chain and minimize transportation costs while improving on-time delivery performance and predictability. The supply chain planner module delivers and streamlines the VMI function, through which Leiner efficiently meets demand by planning far in advance to optimize supply.
STREAMLINE SUCCESS
The complex data in Leiner's VMI application is staggering, especially at large accounts with hundreds or thousands of stores, dozens of distribution centers and a portfolio of more than 100 Leiner products. With large accounts, planning is done at the store level, shipping at the distribution level and billing at the corporate level. The supply chain planner streamlines the process. After checking stock levels, promotional quantities and lead times, Leiner uploads customers' daily inventory data (received via EDI) into the module and in minutes, calculates reorders, truckloads, consolidations and specifies reorder quantities. This information is transmitted back to the customer's system and processed as a live order. The tool enables Leiner to examine data in more granular detail so the company can respond accordingly.
DATA RULES
Raj Varma, Leiner's director of demand management, believes a successful VMI approach depends upon how well CG companies integrate manufacturing and planning cycles under three data parameters: consumption, current inventory and desired, future on-hand inventory.
While most consumer foods companies use data to determine what is required next week, Leiner considers its needs for the next quarter, using its main VMI data parameters to look beyond the immediate future to plan production cycles three months in advance.
Planning becomes more accurate when it is based on consumption, current inventory and future inventory, asserts Varma.
"For example, if there is current inventory for just two weeks, and POS trends tell us to have four weeks in the supply chain, all we need to know is how much a customer is selling now, how much inventory is on hand, and the targeted goal. If we keep ourselves current on these three data parameters, the planning process is much more accurate than if we look at past shipments. This is the firm direction in which Leiner is going."
A new forecasting development at Leiner allows the company to view every customer that provides its retail inventory data to Leiner as if it was a VMI account. Instead of relying on sales history, Leiner's model considers retail inventory and POS movement in every weekly planning cycle and incorporates the data into the production and packaging planning cycle to meet future requirements.
PUSHING BACK
Greg Tait, supply chain analyst with Maple Leaf Foods of Toronto, says retailers in consumer groceries are putting pressure on his organization to get on board with VMI, and soon. Retailers dealing with multiple divisions within Maple Leaf Foods want to remove the cost of inventory management by pushing the process back up the supply chain to the suppliers. In response, two divisions of Maple Leaf Foods implemented VMI solutions from Manugistics.
"Now that we have a systems solution and expertise in place, we have improved our case fill rate, enhanced and solidified our overall customer-supplier relationship and see other customers coming into the system," says Tait.
The biggest implementation challenge for Maple Leaf Foods was obtaining accurate sales history data from grocery retailers, along with on-time EDI transaction data and interruption-free data transfer.
Kara Romanow, a senior industry research analyst with AMR Research of Boston, says one of the major factors holding some partners back from participating in collaborative relationships is simply one of data, specifically the lack of clean product data for collaboration with customers, and clean material and packaging data to use when collaborating with suppliers.
According to Romanow, many of today's leading CG companies are now implementing corporate-wide specification systems to provide "one version of the truth" in the form of a common data model that can be used to facilitate trading partner relationships. "As data synchronization progresses, particularly the cleansing of data, the industry's capability to collaborate will increase substantially," says Romanow.
A VMI solution from Prescient Systems, however, allows leading eyeware seller, AAi.FosterGrant, to bypass the distribution center network and replenish partners at thousands of doors at the store level. Don Juliano, director of demand management, says this process is effective, but initiation was challenged by the low integrity of store level POS data received from customers, for example, data corrupted by sales clerk mistakes. Juliano says the future key enabler will be radio frequency identification (RFID), which will allow inventory count at retail -- and thus VMI, which relies entirely on data -- to be far more accurate.