Vendor Managed Inventory: Maximum service level through supplier driven inventory management

TenglerConsulting partners increasingly rely on Vendor Managed Inventory (VMI). One such partner is Hamburger Containerboard, part of the Austrian Prinzhorn Holding.

The group can look back on decades of success and offers a complete range of high-quality corrugated base papers throughout Europe. The company, headquartered in Austria, employs around 9,800 people and generates an annual turnover of almost 2 billion Euro. TenglerConsulting worked with Hamburger Containerboard during the introduction of VMI and will remain a longstanding partner in future issues relating to successful supply chain management.

The overall objective of Hamburger Containerboard was to maximise customer service to secure competitive advantages. Four production sites in Austria, Germany and Hungary were organised into three sales structures.

The associated location thinking and lack of central planning stood in the way of increased customer benefit. In addition, maximum utilisation of the paper machines was to be achieved.

With Vendor Managed Inventory, the supplier is responsible for all decisions relating to inventory management and the stockholding of its customers. The relevant product groups and their stock limits are defined. This gives the supplier control over available quantities, replenishment times, and delivery to the customer.

The prerequisite for this is that the customer continuously provides point-of-sale and current stock data via an EDI interface (Electronic Data Interchange). Conventional orders become history with this system.

Invoicing the customer takes place only after use in the customer’s warehouse (consignment stock) – fully automatically, of course. At the same time, there is a single central contact person for the customer on the supplier side. In this way, the one-face-to-the-customer principle is considered, reducing administrative effort and enabling fast and customer-friendly services.

The requirement for any VMI partnership is a high degree of cooperation and appropriate management support. After a joint assessment of the status quo, the need for standardisation of structures (e.g. the sales organisation) is reviewed in the course of each project and processes are adapted as necessary.

This means that all Containerboard customers have a single contact person who handles enquiries swiftly and reliably, which also reduces administrative expenses. “Our sales project ‘Leadership in Service’, which includes VMI, stands for maximum customer service and internal efficiency. TenglerConsulting has accompanied us through to successful implementation“ – Harald Ganster, CEO of the Prinzhorn Group

Storage capacities and warehouse conditions as well as the IT systems of the customers are checked for VMI suitability and an EDI interface is set up. The products with the largest volumes, primarily so-called fast-moving items, and the minimum and maximum quantities are determined together with the customers. The history of VMI articles is made accessible. The customer and supplier define the contractual conditions. In this case, Hamburger Containerboard uses a centrally controlled forecasting system. The order stage is eliminated and the supplier works with current data. This reduces the variability in demand for suppliers, avoids uncertain forecasts and enables the reduction of capacity buffers. Transport route resources are used efficiently, machine utilisation can be further optimised and stock-outs become a thing of the past. The level of service increases sustainably. On the customer side, the disposition effort is reduced while at the same time security of supply is guaranteed.

TenglerConsulting is able to contribute significantly to success in the analysis, conception and introduction of Vendor Managed Inventory through know-how in professional project and change management.

The following supply chain improvements are ensured in the long term:

• Security of supply with VMI products – On-Time-in-Full (OTIF)
• Optimierung des Service-Levels und „One-Face-to-the-Customer”
• Less administrative work for both sides through automation
• Optimization of machine capacity utilisation (OEE)
• Optimization of stock levels (Working Capital)

The success of the project is reflected in the key supply chain indicators:

In addition to the advantages of Vendor Managed Inventory already described, the Overall Equipment Efficiency (OEE) of the machines is also considerably increased. Asset intensive companies benefit considerably. For instance, paper machines can be up to ten meters wide and are always a huge investment. Central planning enables optimum utilization of the individual production sites and their specific facilities.

In margin-driven industries, gainsharing contracts will increasingly be used in the future, so that both partners will benefit from VMI’s improved performance and reduced costs. TenglerConsulting assists in the precise definition and selection of the Key Performance Indicators (KPIs) to ensure that both sides share in the success.