VMI: Building a Demand Driven Program to Drive Working Capital Savings. October 2014

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Meryl Matthews
8 years ago
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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

supplier management success Using segmenta<on to

3 Elemica Supply Chain Operating Network Network Algorithms Predictive Analytics Benchmarks Discovery Process Control Tower Sourcing Mgmt. Supplier Mgmt. 3 rd Party API Logistics Mgmt. Master Data Mgmt. Customer Mgmt. Business Rules Partner Connectivity Re-Usable Implementation Bundles Transaction Dashboard UBC s Universal Transaction Model UBD s

3 rd Party API Logistics Mgmt. Master Data Mgmt. Customer Mgmt.

4 Supplier Management One Buyer managing many suppliers With Elemica Manage your supplier network with one connec<on Manage your ordering processes with one solu<on Buyer SmartLink TM Applica<ons Purchase Order Management Delivery Forecast Invoice Management Cer<ficate of Analysis (CoA) Vendor Managed Inventory Global Supply Management QuickLink TM Network Supplier 1 Supplier 2 Supplier 3 Supplier 4 Supplier 5 Supplier 6 Supplier 7 Supplier 1000

Management Delivery Forecast Invoice Management Cer<ficate of Analysis (CoA) Vendor Managed Inventory Global

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

your suppliers the tools to create optimized delivery schedules through shared visibility into your forecast and

7 What is VMI? Buyer Plan Inventory & Forecast Supply Plan/ Order Commitment Inventory Projec<on and Planning Algorithm Fill Book Delivery Slot Advance Ship No<ce Cer<ficate of Analysis Delivery Receipt Pay Invoice ERS/Pay on Receipt Invoice Status Payment Advice Supplier End to End Integra<on Business Rules Engine Business Process Workflow Report, No<fica<on, and Alert Genera<on

Algorithm Fill Book Delivery Slot Advance Ship No<ce Cer<ficate of Analysis Delivery Receipt

8 Benefits of VMI

9 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 Chief Supply Chain Officer Report 2013 SCM World Strong Supplier Rela8onships listed as second most important value contributor 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.

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.

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 Best in Class Automated All Others Manual Percent Improvement A large North American- based chemicals Purchase Order $4.13 $ % enterprise before implementa8on of a Order supplier Response network, $0.50 the average $8.70 processing 94% cost hovered around the $20 mark. ASer the Ship No<ce $1.50 $ % supplier network was in place, processing costs Invoice dipped nearly $ %. $17.77 Aberdeen 79% Total $9.80 $ % 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 6% B2B Integra<on and Collabora<on: Strategies for Building an ROI Business Case - Aberdeen

discounts Manage by excep8on Best in Class Automated All Others Manual Percent Improvement A large North American- based chemicals Purchase Order $4.13 $16.

11 VMI Program Best Practices

12 Supplier Management Foundation Elemica Recommended Supplier Management Roadmap Procurement Execu<on Process Collabora<on Purchase Order Management DELFOR Invoice Management CoA Vendor Managed Inventory Global Supply Management Slot Booking Automate standard business processes Start change management effort Build partner network Capture automa8on savings Build B2B program momentum Modernize business processes Collaborate with suppliers Gain visibility into extended supply chain Reduce transporta8on costs Focus on value add ac8vi8es Reduce working capital

processes Start change management effort Build partner network Capture automa8on savings Build B2B program momentum Modernize business

13 Supplier Management Foundation Elemica Recommended Supplier Management Roadmap Purchase Order Management DELFOR Procurement Execu<on Invoice Management CoA Year 1-2 Build out standard ordering process 50% of direct material spend automated (Purchase Order Management & Invoice) Vendor Managed Inventory Process Collabora<on Global Supply Management Slot Booking Year 3 40% of raw material spend in VMI 10% of raw material spend in VM(O)I

material spend automated (Purchase Order Management & Invoice) Vendor Managed Inventory Process Collabora<on

14 Segmentation is key Star<ng programs with the right suppliers is cri<cal to success Kraljic Porholio Model - Segmenta<on around Sourcing Strategy High Leverage Supply Strategic Supply Profit Impact Supplier Segments Rou<ne Supply Boaleneck Supply Low Low Supply Risk High

Sourcing Strategy High Leverage Supply Strategic Supply Profit

15 Segmentation is key Procurement Execu<on Process for Strategic Segment High Leverage Supply Strategic Supply Profit Impact Supplier Segments Rou<ne Supply Boaleneck Supply Low Low Supply Risk High

Strategic Supply Profit Impact Supplier Segments

16 How to make VMI work Procurement Execu<on Process for Strategic Segment VM(O)I Factors High Value/Volume Low VMI VMI Strategic Strategic Supply Suppliers POM POM Category Volume Value Transporta<on Time Sourcing Strategy Steady Consump<on Internal abili<es Leverage Familiarity Low Transporta<on Risk High

Suppliers POM POM Category Volume Value Transporta<on Time Sourcing Strategy

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?

Order Automation Pays Customer Management Breakout Session insight 2013

Order Automation Pays Customer Management Breakout Session insight 2013 Presented by Gary Neights Elemica s Customer Management Suite Touch-less order processing Increase the perfect order percentage Improved