Switching Roles with Vendor Managed Inventory
Vendor Managed Inventory (VMI) alters the relationship between a supplier and its customer. Instead of responding to a delivery schedule, the supplier assumes responsibility for managing the customer’s inventory. This form of cooperation offers advantages for both parties. The customer benefits from lower stock levels, reduced logistics costs and transparent purchase processes, while the supplier enjoys more efficient and flexible planning. Grässle GmbH has adopted this principle and is successfully using SupplyOn’s Inventory Collaboration solution to supply its customer ZF, a leading global partner for the automotive industry.
As a leading international automotive supplier, the ZF Group relies on highly complex processes and high-volume purchasing. ZF therefore needs to ensure that quality and efficiency of its processes are continuously optimised. Purchase processes play a key role. Following a comprehensive pilot phase, ZF has been using Vendor Managed Inventory via SupplyOn to manage some of its procurement processes since mid-2005. Friedrichshafen-based company Grässle GmbH was one of the first suppliers to implement the new process in cooperation with ZF.
The family company has been serving the automotive industry for over 30 years and now focuses on the manufacture and assembly of mechanical components. The components are produced in volumes ranging from 15,000 to 350,000 and primarily involve locking and spring elements, valves and speedo shafts.
Reducing warehousing and transport costs
With SupplyOn Inventory Collaboration, new planning methods such as VMI or Kanban can be implemented allowing a supplier to manage its customer’s inventory. Stock level data and requirements are displayed and maximum and minimum stock levels agreed for each item. The supplier uses this information to manage replenishment of its customer’s stock. Implementing VMI has significantly improved Grässle’s supply process. “One key benefit is that we can now supply larger numbers of items. This significantly reduces the frequency of deliveries and thus transport costs“, explained Ursula Grässle, the company’s deputy General Manager. “Increased transparency means we now have a pre-production time of four to six weeks and vastly improved planning certainty.“ ZF’s Roland Dudichum, who is responsible for management of VMI transactions with suppliers, confirmed the benefits: “Using SupplyOn’s VMI solution has helped us optimise purchasing for these parts; instead of ten processes, we now often only have one process with our VMI suppliers.” Consequently, much of the processing volume in terms of inventory management, transport and accounting has simply disappeared.
Efficient control of consignment stock
Another benefit is the ability to optimise inventory logistics by combining the Vendor Managed Inventory method with the consignment stock concept. The latter involves the customer making warehouse space available to the supplier even though goods initially remain the property of the supplier. Transfer of ownership and invoicing take place when the customer removes the goods. Combining both concepts benefits the supplier in several ways: reduced transport costs, greater planning certainty and a longer planning horizon, full process transparency, reduction in own warehousing space and manufacturing in optimum batch sizes. “The series we produce are largely independent of individual order volumes. Before, that meant we had to keep parts in stock in our warehouse”, explained Grässle. “Now we can save on warehousing costs. Communication and transport costs are also reduced.”
Optimum process management
Communication and trust – crucial assets
Both Ursula Grässle and Roland Dudichum believe a stable relationship of trust and ongoing communications are crucial to the success of a Vendor Managed Inventory project. “We have more responsibility than before because we ourselves are largely responsible for ensuring optimum stock levels. This means we need very good knowledge of our customer‘s production and logistics processes and in the pilot phase in particular, we need to maintain intensive communication“, concludes Ursula Grässle.