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About VMI
Vendor Managed Inventories

-1

What does Vendor Managed Inventories (VMI) mean?

Basically the VMI Process means that the customer delegates the inventory replenishement responsibility to the product supplier. The VMI process is based on a set of business rules. The vendor initiates purchase orders on behalf of the customer to control the customers inventory level within defined thresholds. The customer provides actual inventory status information and defines Minimum and Maximum inventory levels by item. The vendor takes care to keep the customers inventory level within the defined thresholds and initiates replenishment in time. This VMI application provides a set of IT tools to fully automate: the retrieval of actual customer inventory status information the calculation of proposed order quantities (Advanced Purchase Order) the transmission of the APO to the customers ERP system The proposed order quantities are calculated against true supply chain demands rather than maximum inventory levels. The purchase orders may either be seen as a proposal for review by the customer or may be feeded directly into the customers ERP system. Anticipation of future customer demands allows to minimize the Min-Max bandwith and therefor the overall customer inventory level. Demand projection may either be forecasted or derived by trending from sales history.

Wy VMI?
Currently Supply Chains are often composed from separate individual planning units, i.e. the row material supplier, the manufacturer, the distribution site or retailer. Each of the planning units maintain their own inventory and create their own planning / buying schedule based on individual perception of security requirements, future demand expectation and supply service experience. Although communication between planning units improves steadily there are still many surprises due to a lack of inventory and demand visibility. This uncertainty triggers shortfalls, obstruction, and costly emergency measures to counteract Backorders all along the supply chain. Consequently the individual planning units tend to respond with increase of their security stock levels to ensure good service to their customers. From a financial point of view the impact of a humpling supply chain is at least threefold: Emergency measures adversely impact production cost and efficiency. Each supply chain unit spents into planning and buying capacity. Capital is bound in unneccessary high inventories. The VMI process provides clear visibility of the customers inventory situation and demand development. This enables the suppliers to align their activities with the customers requirements and take action in time. VMI reliefs planning capacity by supporting the requirement analysis and by automation of standard tasks such as i.e. quantity calculation, order creation and data transmission.

adregio GbR Am Marienhof 14, D-24326 Ascheberg - Germany Phone: +49 4526 3397635 - Fax: +49 4526 3397634 - eMail: contact@adregio.de - www.adregio.de

adregio eSolutions
Internet Communication Service

About VMI
Vendor Managed Inventories

-2

VMI Benefits
Obviously the biggest benefit of the VMI process may be earned from the fact that the implementation of that process creates very close co-operation and communication between customer and supplier when they review the drivers and parameters of their business relation. Benefits for the Customer: inventory reduction because of more reliable replenishment in time cost savings due lower planning effort price reductions due to less emergency orders clear measurement of supplier performance improved supplier communication Benefits for the Supplier: increased customer binding due to unique service improved insight into customer inventories and demand development flexibility, when to deliver lower inventory due to less emergency orders smoother production due to predictable customer demands improved customer communication

VMI Features The VMI process and application is highly flexible and can easily be configured to the requirements of a specific supply chain. Users require only a Standard Web Browser to access VMI Automated data interchange between customer and supplier Automated calculation of proposed replenishment quantities by item The calculation can easily be customized to consider i.e.: demand forecast or demand trending from history Short Term Consignment Inventories open sales orders, open purchase orders, goods in-transit transportation and inspection lead times multiple shipments per period packs of single units and multiple unit packs lot sizes and individual batch rules Choice between automated order creation or proposal review by planner before upload NO BLANKED ORDER required Business rules for MIN-MAX definition (can be automated, based on customer parameters) EMail enabled supply chain monitoring and deviation alerts

adregio GbR Am Marienhof 14, D-24326 Ascheberg - Germany Phone: +49 4526 3397635 - Fax: +49 4526 3397634 - eMail: contact@adregio.de - www.adregio.de

adregio eSolutions
Internet Communication Service

About VMI
Vendor Managed Inventories

-3

VMI Process Flow

1. Customer downloads item status from ERP system (i.e. actual stock level, actual consignments, etc.) 2. VMI application retrieves data (VMI file) by means of FTP 3. Supplier uses VMI application to calculate quantities to ship (APO) 4. VMI application sends APO to customer by means of FTP 5. Customer (optionally reviews and) uploads APO into ERP 6. Customer releases ERP purchase order 7. Order is tranferred to supplier by means of EDI (if available) 8. Supplier initiates shipment and transmits invoice by means of EDI (if available)

VMI Application Technique

VMI application build on Apache / PHP / MySQL (Open Source GLP - no license fees ) Server-side application - runs solely on Webserver Interface to ERP by means of ASCII -File import/export File transmission by means of FTP (controlled automatically within application)

VMI Requirements
Requirements on Customers: Standard Web Browser Ability to provide actual inventory levels by item FTP Server ERP Import/Export capability (optional) EDI connection with supplier (optional) Ability to provide unit forecast by item (optional)

Requirements on Supplier: Standard Web Browser Webserver with APACHE / PHP / MySQL EDI connection with customer (optional)

adregio GbR Am Marienhof 14, D-24326 Ascheberg - Germany Phone: +49 4526 3397635 - Fax: +49 4526 3397634 - eMail: contact@adregio.de - www.adregio.de

adregio eSolutions
Internet Communication Service

About VMI
Vendor Managed Inventories

-4

A VMI Project Example

VMI process implemented in a Medical Device Company (Global Player) VMI Process life since November 2002 VMI process includes customers in Japan and US and suppliers in Germany and Swiss Business rules and measurement definition and implementation ( ca. 2 weeks) VMI system installation and configuration (ca. 2 weeks) More than 1000 items controlled by VMI Proven ability to remotely control actual inventories within MIN-MAX threshold

VMI System Layout

adregio GbR Am Marienhof 14, D-24326 Ascheberg - Germany Phone: +49 4526 3397635 - Fax: +49 4526 3397634 - eMail: contact@adregio.de - www.adregio.de