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  • Insights On Efficiency


Reduce Working Capital With a Customized VMI Program (part 1)

Posted by Brad Hudson, VP Operation


This is part 1 of a 2-part series looking at how a custom VMI program can and should result in significant reductions in working capital. This first post will look at our proprietary approach to assessing the current situation, what we do with that assessment, and the roles that forecasting and production planning play as a custom program is implemented.

Taking a step back, stop to consider that the concept of VMI programs has been around for decades. As such it can be tempting to think of VMI generically, as a commodity service that‘s structured and performed relatively the same regardless of who’s performing it. At Supply Technologies we feel that attitude couldn’t be further from the truth, and it’s why our customers experience more than they expected as we use our in-depth data collection and analysis expertise to uncover potential efficiency improvements across the entire supply chain, both internally and externally.

Tactical Process Analysis

We operate with one overarching goal always in mind: enable each of our customers, regardless of their size or scope, to build their products better, smarter, and faster, and more cost effective than ever before. That drove us to create an approach to VMI program development that we call Tactical Process Analysis (T.P.A.) TPA is the first step we take in creating custom programs for new and existing customers, with the goal of mapping out each discrete supply chain action or process so we get an accurate, current picture of anything that employs your people, facilities or assets within the supply chain.

We look at everything, from who’s involved in your purchasing department administratively, to how often and by whom inventory is handled, to how often inventory is transported and how much space it uses at each touch-point, to the administrative support required to managed vendor accounts payable. When we say we look at everything, we mean everything.

As for deliverables, our Tactical Process Analysis Team (T.P.A.T) provides customers with an itemized audit of the products we are currently delivering or will be delivering in the future and  their current supply chain costs  More importantly, it provides our recommendations for optimized tactical processes, with the identified cost savings associated with each.

Material & Demand Planning  

Another aspect of building a sustainable custom VMI program that acts as a long-term source of supply chain value comes from turning our experience and discipline into material plans that are fully integrated with our customers’ demand plans and sales forecasts. Our team starts with a rigorous dive into the data, starting with a review of parts definition and print review, to confirm or update, a process that always uncovers some disconnects that weren’t expected.

We also review the floor layout and parts disbursement practices, analyze point-of-use data by location, and account for current on-hand inventory levels. We study historical usage  data and current trends, and integrate that data with everything current suppliers have on hand and on order. All this is done in the context of a hard look at quality requirements to define quality control plans focused on precision delivery of the correct product specs as a means of building a sustainable total delivered cost.

Our planning regimen also leads us to the development of a JIT model for all parts within our control. That model will follow the previously discussed TPA recommendations, as well as provide additional recommendations on parts labeling and packaging concepts contributing to improved performance and quality control. We also analyze IT telecommunications systems and tools, again to insure the program as implemented is operationally sustainable.

Finally, our team puts together a comprehensive implementation program that places heavy emphasis on training, since the best laid plans don’t have a chance if your team isn’t properly trained to execute as confident owners of the plan. The implementation leaves nothing to chance, with tracking and measurement at every possible metered opportunity. The rigor we build into implementation means the recommendations and program elements that got you excited enough to say “Go!” are exactly what your operations experience when your program is fully implemented.  

Now that you’re at the point of launching a custom program, in part 2 of this series we’re going to look at inventory management, inventory ownership and distribution, and technology and systems as areas that can contribute to working capital reduction with an implemented program. And you’ll see more evidence that all programs and program providers are not created equal.