I2 U Intelligent Supply Chain Management Course Module Twelve: Inventory Deployment.
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Transcript of 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
_
+N
umbe
r of d
ecis
ions
+
_
Spec
ifici
ties
by in
dust
ries Length of Planning horizon
Fu
lly
Inte
gra
ted
to
p-d
ow
n d
irec
tio
ns
Fu
lly
Inte
gra
ted
bo
tto
m-u
p f
eed
bac
k
Reaction to changing supply conditions
3© 2001 i2 Technologies Inc CONFIDENTIAL
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
4© 2001 i2 Technologies Inc CONFIDENTIAL
Inventory Deployment Process Positioning
hou
rs
days
wee
ks
mon
ths
year
+
buy
make
move
sell
store
operational tactical strategicscheduling
5© 2001 i2 Technologies Inc CONFIDENTIAL
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)
6© 2001 i2 Technologies Inc CONFIDENTIAL
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
7© 2001 i2 Technologies Inc CONFIDENTIAL
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
8© 2001 i2 Technologies Inc CONFIDENTIAL
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
9© 2001 i2 Technologies Inc CONFIDENTIAL
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
10© 2001 i2 Technologies Inc CONFIDENTIAL
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
11© 2001 i2 Technologies Inc CONFIDENTIAL
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.
12© 2001 i2 Technologies Inc CONFIDENTIAL
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)
13© 2001 i2 Technologies Inc CONFIDENTIAL
2 3 4 5 62 3 4 5 611PERIODPERIOD
FORECASTFORECAST
PROJECT.PROJECT.STOCKSTOCK
FUTUREFUTURESUPPLYSUPPLY
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
Consumption Consumption periodperiod
VMI ORDERVMI ORDER 1212
00 1818
VMI Prerequisite:Monitoring Through Forecast Consumption (2/3)
14© 2001 i2 Technologies Inc CONFIDENTIAL
2 3 4 5 62 3 4 5 611PERIODPERIOD
FORECASTFORECAST
PROJECT.PROJECT.STOCKSTOCK
FUTUREFUTURESUPPLYSUPPLY
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
Consumption Consumption periodperiod
VMI ORDERSVMI ORDERS 2020
00 00 1212
VMI Prerequisite:Monitoring through Forecast Consumption (3/3)
15© 2001 i2 Technologies Inc CONFIDENTIAL
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
16© 2001 i2 Technologies Inc CONFIDENTIAL
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.