Other Planning Techniques (VMI,QR,CRP, etc)
Other inventory planning techniques, especially for retail stores are Vendor-managed inventory (VMI). This is where the manufacturer is given the responsibility for monitoring and controlling inventory levels at the retailer’s DC and in some instances at the retail store level as well. Specific inventory targets are agreed, and it is the responsibility of the manufacturer to ensure that suitable inventory is always available. Such arrangements depend on accurate and timely information, and suitable computerized systems have become available in recent years.
The main advantage for retailers lies in the reduction of operating costs and also the delay in payment for the products in question. For manufacturers, it is suggested that running a VMI system for a retailer provides the opportunity to develop a much closer, and hopefully more binding, relationship with the retailer as well as giving a much better visibility of real demand. This can make the planning of production much easier and can lead to significant reductions in inventory holding right through the supply chain.
Continuous replenishment (CRP). The aim with CRP is to develop free-flowing order fulfillment and delivery systems, so that pipeline inventories can be substantially reduced. Such systems use up-to-the-minute point-of-sale information (via electronic point-of-sale – EPOS – systems) to identify real-time demand and to pull product through directly from the supplier, through the DC and on to the retail outlet. CRP systems are thus able to synchronize this flow of product by focusing on end-user requirements via the use of real-time demand, linked to flow-through distribution systems that allow for cross-docking, store-ready packaging and automated handling. Once again, pipeline inventory is kept to a minimum or completely eliminated.
Quick response (QR). A further development of the JIT approach is that of quick response (QR). Here the aim is to link the manufacturer more closely to the actual demand at the retail level. There are strong similarities with continuous replenishment systems, but with QR the emphasis is on time compression and the opportunity for the manufacturer to redesign production operations to allow for a ‘little and oft en’ approach to resupply. Short production changeovers and small batch sizes enable the manufacturer to respond to changes in demand in a very short timescale.
Efficient consumer response (ECR) – It is another concept that uses the most recent advances in information technology to allow a streamlined approach to the supply of products to retail stores. ECR was originally set up and run in the USA with the aim of improving service and reducing costs in the grocery industry by focusing on the efficiency of the supply chain as a whole rather than on individual components in individual companies. The goal of ECR is therefore to develop a customer-driven system that works across the supply chain. One original definition is still very applicable today: ‘A seamless flow of information and products involving manufacturers and retailers working together in joint planning and demand forecasting.
Category management (CM) – It has been developed to provide greater support for product and inventory control and management. It is essentially a means of categorizing products into ‘families’ that have very similar characteristics in terms of their selling profile. Thus, SKUs from very different product groups may be categorized together and their inventory holding planned in the same way because they have the same order or usage patterns. Typical examples of these categories are:
- Vital and expensive: products that require close control and monitoring. Supply sources need to be reliable, and delivery performance must be consistently good. A continuous stock review policy should be applied to products in this category.
- Desirable and expensive: inventory should be held at minimum levels and a continuous stock review policy should be applied.
- Vital and inexpensive: these should be stocked at maximum levels, and a reliable source of supply should be substantiated. Delivery performance should be carefully monitored. A weekly periodic stock review policy should be used.
- Desirable and cheap: hold maximum stock levels and use a monthly periodic stock review policy. Keep order frequency to a minimum number of times per year.
- Common usage spares: hold stocks at reasonable levels and use a monthly periodic stock review policy.
Collaborative planning, forecasting and replenishment (CPFR) – It combines multiple trading partners in the planning and fulfillment of customer demand. Sales and marketing best practice (eg category management) is linked to supply chain planning and operational processes to increase product availability at the same time as minimizing inventory and logistics costs.
A general framework is used to help the retailer/buyer and manufacturer/seller to work together to satisfy the demand of the customer. There are four main areas for collaboration
- Strategy and planning: identifying and agreeing the overall rules for the collaboration, including product mix and placement, and event plans.
- Demand and supply management: forecasting of consumer demand at the point of sale and replenishment requirements.
- Execution: the placing of orders, delivery shipments, restocking of products on shelves, etc. These are all of the events in the ‘order to cash’ cycle.
- Analysis: monitoring of exception orders, calculating KPIs and assessing continuous improvement opportunities.
