Procurement Breakout – Omar Nadi, Elemica: “VMI: Building a Foundation to Drive Working Capital Savings”
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This document discusses building a vendor managed inventory (VMI) program to drive working capital savings. It defines VMI as a collaboratively managed order replenishment solution that provides suppliers tools to create optimized delivery schedules through shared visibility into forecasts and inventory levels. The document outlines benefits of VMI such as reduced costs from automation and improved collaboration. It provides best practices for a VMI program including automating standard processes, change management, and building a supplier network foundation before implementing more advanced strategies.
Procurement Breakout – Omar Nadi, Elemica: “VMI: Building a Foundation to Drive Working Capital Savings”
- 1. VMI: Building a Demand Driven Program to Drive Working Capital Savings October 2014
- 2. Agenda • Elemica SCON • VMI Defined • Benefits of VMI • VMI Program Best Prac<ces • Crea<ng a founda<on for supplier management success • Using segmenta<on to target the right suppliers • Change management & driving a win/win
- 3. Elemica Supply Chain Operating Network Universal Transaction ModelUBC’s UBD’s Supplier Mgmt. Sourcing Mgmt. Logistics Mgmt. Customer Mgmt. Master Data Mgmt. Business Rules 3rd Party API Partner Connectivity Re-Usable Implementation Bundles Transaction Dashboard Discovery Process Control Tower Benchmarks Predictive Analytics Network Algorithms
- 4. Supplier Management Supplier 1 Supplier 2 Supplier 3 Supplier 4 Supplier 5 Supplier 6 Supplier 7 Supplier 1000 Buyer QuickLinkTM Network One Buyer managing many suppliers With Elemica Manage your supplier network with one connec<on Manage your ordering processes with one solu<on Purchase Order Management Delivery Forecast Invoice Management Cer<ficate of Analysis (CoA) Vendor Managed Inventory Global Supply Management SmartLinkTM Applica<ons
- 5. VMI Defined
- 6. What is VMI? VMI or VMOI (vendor managed and owned inventory) is a collaboratively managed order replenishment solution providing your suppliers the tools to create optimized delivery schedules through shared visibility into your forecast and inventory levels. Common Acronyms VMI – Vendor Managed Inventory VM(O)I – Vendor Managed & Owned Inventory SMI – Supplier Managed Inventory CRP – Con8nuous Replenishment Planning CPFR – Collabora8ve Planning Forecas8ng & Repleishment
- 7. What is VMI? Supply Plan/ Order Commitment Inventory & Forecast Plan Advance Ship No<ce Delivery Receipt Fill Cer<ficate of Analysis Invoice Payment Advice Pay ERS/Pay on Receipt Buyer Book Delivery Slot Supplier End to End Integra<on Business Rules Engine Business Process Workflow Inventory Projec<on and Planning Algorithm Report, No<fica<on, and Alert Genera<on Invoice Status
- 9. The Chief Supply Chain Officer Report 2013 – SCM World Strong Supplier Rela8onships listed as second most important value contributor Why VMI? Unlocking Working Capital Best Prac<ces for Reducing Inventory – Aberdeen Inventory Misconcep<ons: Using purchase orders or release no<ces for replenishment is efficient A growing number of companies that used to cut purchase orders or release no8ces for their suppliers are discovering it is more effec8ve to ask suppliers to take responsibility for maintaining inventory between min/max levels. The Resurgence of Vendor-‐Managed Inventory – AMR The Boaom Line: We are in an era where effec8ve vendor-‐managed inventory approaches may be necessary for survival. B2B Collabora<on No Longer Op<onal – Aberdeen The top priori8es for leaders are collabora8on with suppliers and customers. The likelihood is 72% greater for the leaders than the followers to collaborate with suppliers.
- 10. Why VMI? Automa<on • Reduce processing costs • Free up human capital • Cut over8me & rush shipments • Improve opera8onal planning • Increase perfect orders and reduce points of interven8on • Capture early payment discounts • Manage by excep8on A large North American-‐based chemicals enterprise…before implementa8on of a supplier network, the average processing cost hovered around the $20 mark. ASer the supplier network was in place, processing costs dipped nearly 75%. – Aberdeen Collabora<on • Increase forecast and planning accuracy • Reduce safety stock • Improve upstream planning by giving suppliers real 8me visibility into opera8ons • Reduce shortages and stock outs • Reduce transporta8on costs • Build closer rela8onships with partners • Provide an incen8ve for consignment $1.5B – Annual Raw Material Spend 30% -‐ Managed in VMI 15% -‐ Managed in VM(O)I 5 – Days of Inventory Reduc8on $32M – Working capital reduc8on -‐ consignment $7M – Working capital reduc8on from inventory turnover improvement $2.4M – Annual Cost of Capital Avoidance @ 6% Best in Class Automated All Others Manual Percent Improvement Purchase Order $4.13 $16.94 76% Order Response $0.50 $8.70 94% Ship No<ce $1.50 $12.46 88% Invoice $3.67 $17.77 79% Total $9.80 $55.87 82% B2B Integra<on and Collabora<on: Strategies for Building an ROI Business Case -‐ Aberdeen
- 12. Purchase Order Management DELFOR Invoice Management CoA Procurement Execu<on § Automate standard business processes § Start change management effort § Build partner network § Capture automa8on savings § Build B2B program momentum Supplier Management Foundation Elemica Recommended Supplier Management Roadmap Vendor Managed Inventory Global Supply Management Slot Booking Process Collabora<on § Modernize business processes § Collaborate with suppliers § Gain visibility into extended supply chain § Reduce transporta8on costs § Focus on value add ac8vi8es § Reduce working capital
- 13. Purchase Order Management DELFOR Invoice Management CoA Procurement Execu<on Year 1 -‐ 2 § Build out standard ordering process § 50% of direct material spend automated (Purchase Order Management & Invoice) Supplier Management Foundation Elemica Recommended Supplier Management Roadmap Vendor Managed Inventory Global Supply Management Slot Booking Process Collabora<on Year 3 § 40% of raw material spend in VMI § 10% of raw material spend in VM(O)I
- 14. Boaleneck Supply Segmentation is key Strategic Supply Leverage Supply Rou<ne Supply Supplier Segments Profit Impact Star<ng programs with the right suppliers is cri<cal to success Kraljic Porholio Model -‐ Segmenta<on around Sourcing Strategy High Low Low High Supply Risk
- 15. Boaleneck Supply Segmentation is key Strategic Supply Leverage Supply Rou<ne Supply Supplier Segments Profit Impact Procurement Execu<on Process for Strategic Segment High Low Low High Supply Risk Strategic Supply
- 16. POM How to make VMI work POM VMI VMI Strategic Suppliers Value/Volume Procurement Execu<on Process for Strategic Segment High Low Low High Transporta<on Risk Strategic Supply Category Volume Value Transporta<on Time Sourcing Strategy Steady Consump<on Internal abili<es Leverage Familiarity VM(O)I Factors
- 17. Change mgt & driving a win/ win • “Accurate and transparent data is essen8al” • Forecast data • Delivery data • Inventory data • Change management • Organize – Align internally • Execu8ve sponsorship • Comprehensive team (commercial, mat mgt, plants, trans.) • Educa8on of stakeholders • Commit – Create a culture • Make automa8on the rule • Centers of excellence • Measure & Review • Supplier management is con8nuous improvement • CoE review sessions to direct resources toward capturing ROI
- 18. Questions?