Concept Note : 1

VMI in Apparel Manufacturing

Introduction

Vendor-managed inventory (VMI) is sweeping through many areas of retail today as the next step

in supply chain management. Retailers, particularly those in commodity markets, see it as

essential technique to reduce inventory and apparel retailers are no exception either. In principle

VMI increase sales by avoiding out-of-stocks on in-demand products, and reduce losses from

overstocks of products that no longer sell.

What is VMI?

Vendor Managed Inventory (VMI) is essentially a distribution channel operating system whereby

the inventory at the distributor/retailer (dist/ret) end is monitored and managed by the

manufacturer/vendor (mfg/vend). It includes several tactical activities including, determining

appropriate order quantities, managing proper product mixes, and configuring appropriate safety

stock levels. The rationale is that by pushing the decision-making responsibility further up the

supply chain, the manufacturer/vendor will be in a better position to support the objectives of the

entire integrated supply chain resulting in a sustainable competitive advantage. Through access to

the retailers’ sales data manufacturers can build to market demand, reacting faster to changing

needs.

How is VMI different from traditional inventory management?

VMI is typically the opposite of the inventory management approach taken by most organizations

today. Currently, orders are pulled through the supply chain by each partner as inventory levels

reach "replenishment/re-order" points. 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 position to make

inventory replenishment decisions. This entity is usually the mfg/vend partner given its upstream

position in the channel. The overall goal must be to support total value chain cost minimization by

pushing decision making on replenishment activities furthest up the supply chain.

Why VMI?

To reduce/share cost of inventory

To reduce/share space requirement for inventory

To cut down response (procurement) time

To reduce/share uncertainty of type of merchandise requirement

To reduce/share uncertainty of quantity of merchandise requirement

Typical Benefits to manufacturer Typical Benefits to distributor/retailer

• Lower inventory investment (raw and finished)

• Better scheduling and planning

• Better market information

• Closer customer ties and preferred status

• Fewer stock-outs with higher turnover

• Better market information

• More optimal product mixes

• Less inventory in channel (transfer costs)

• Lower administrative replenishment costs

VMI Application In Apparel Manufacturing

VMI can be looked as a step beyond Just in Time (JIT) in manufacturing scenario. In JIT scenario

vendor is supplying inventory to manufacturer Just in Time, whereas in VMI vendor is

maintaining (means already supplied before time) inventory at manufacturer’s warehouse. In

practice it is seen that JIT pushes the effects of unpredictability upstream in the supply chain.

While the manufacturer require to predict (forecast!) the demand for retailer, the consumable

vendor further up in the supply chain can simply calculate the requirement for manufacturer; this

is the key difference. The quality and quantity of merchandise in VMI are two very important

(often disguised) parameters for VMI application in manufacturing. Unlike retail scenario where

inventory has individual identity and is tracked by SKU, inventory at manufacturing level has two

identities; quality and quantity. While predicting inventory at manufacturing level involves

getting both quality and quantity right.

Benefits of VMI

1. Improved customer service. By receiving timely information directly from cash registers,

suppliers can better respond to customers’ inventory needs in terms of both quantity and location.

2. Reduced demand uncertainty. By constantly monitoring customers’ inventory and demand

stream, the number of large, unexpected customer orders will dwindle, or disappear altogether.

3. Reduced inventory requirements. By knowing exactly how much inventory the customer is

carrying, a supplier’s own inventory requirements are reduced since the need for excess stock to

buffer against uncertainty is reduced or eliminated.

4. Reduced costs. To mitigate the up-front costs that VMI demands, Fox suggests that

manufacturers reduce costs by reengineering and merging their order fulfillment and Distribution

Center replenishment activities.

Concept Note :2

Kaizen

INTRODUCTION

Kaizen is system of continuous improvement in quality, technology, processes, company culture,

productivity, safety and leadership.

AIM

"Create new ideas to achieve continual improvement through small changes"

What is Kaizen?

Kaizen was created in Japan following World War II. The word Kaizen means "continuous

improvement". It comes from the Japanese words("kai") which means "change" or "to correct"

("zen") which means "good".

Kaizen is a system that involves every employee - from upper management to the cleaning crew.

Everyone is encouraged to come up with small improvement suggestions on a regular basis. This

is not a once a month or once a year activity. It is continuous Kaizen is based on making little

changes on a regular basis: always improving productivity, safety and effectiveness while

reducing waste.

In business Kaizen encompasses many of the components that have been seen as a part of their

success. Quality circles, automation, suggestion systems, just-in-time delivery, Kanban and 5S are

all included within the Kaizen system of running a business.

Kaizen involves

Setting standards and then continually improving those standards. To support the higher standards

Kaizen also involves providing the training, materials and supervision that is needed for

employees to achieve the higher standards and maintain their ability to meet those standards on an

on-going basis.

Continuous Improvement

Continuous improvement (CI) can be defined as the planned, organized and systematic process of

ongoing, incremental and company-wide change of existing practices aimed at improving

company performance

Successful CI

CI implementation involves not only the training and development of employees in the use of

tools and processes, but also the establishment of a learning environment conducive to future

continuous learning.

The short description of PDCA cycle is given below

Plan: Identify an opportunity and plan for change.

Do: Implement the change on a small scale.

Check: Use data to analyze the results of the change and determine whether it made a

difference.

Act: If the change was successful, implement it on a wider scale and continuously assess

the results. If the change did not work, begin the cycle again.

What Are The Benefits Resulting From Kaizen?

Kaizen Reduces Waste: In areas such as inventory, waiting times, transportation, worker

motion, employee skills, over production, excess quality and in processes.

Kaizen Improves: Space utilization, product quality, use of capital, communications,

production capacity and employee retention.

Kaizen Provides: Immediate results. Instead of focusing on large, capital intensive

improvements, Kaizen focuses on creative investments that continually solve large

numbers of small problems. Large, capital projects and major changes will still be needed,

and Kaizen will also improve the capital projects process, but the real power of Kaizen is

in the on-going process of continually making small improvements that improve processes

and reduce waste.

CONCULISON

They result in improved productivity, improved quality, better safety, faster delivery, lower costs,

and greater customer satisfaction. On top of these benefits to the company, employees working in

Kaizen-based companies generally find work to be easier and more enjoyable—resulting in higher

employee morale and job satisfaction, and lower turn-over.