The concept that often comes to mind for Vendor Managed Inventory (VMI) is the traditional grocery store model used by the "Bread Vendor".  This model has been in existence for many years.  Even though it still has applications in multiple industries, it has evolved over the years, with significant beneficial changes in management techniques and inventory ownership. 
 
The traditional representations of the VMI model supported a daily replenishment process in which a supplier representative/driver would visit each location and determine which and how many of each item to deliver. The market familiarity obtained by the servicing route driver in most cases allowed him/her to easily determine which items to supply based on the amount sold  - items not moving were reduced or replaced with items in high demand or new items.  In essence the "Bread Vendor" managed the inventory.  If they made the right decisions, sales increased and were optimal.  If they didn't, then stock outs occurred and sales declined.
 
Over the past twenty years equivalent models have been applied in a broad range of industries and have evolved significantly with the capabilities achieved through the use of inventory management systems.  The opportunity to manage thousands of products through the proper application of information technology systems now greatly surpasses the capabilities of the old "Bread Vendor" who frequently required visually evaluating product movement each day.  Today, some of the more prevalent models include:

 

National Medical Logistics has been selected by Avera Mckennan supply chain management team to assist with implementing the second phase of moving the current General Stores supply room from an on-site location to an off-site distribution center that will be operated by Avera McKennan.  NML successfully supported the analysis and determination of where the General Stores supply room should be relocated in Phase 1 of the initiative.   

 

As part of the project, NML assisted Avera McKennan in developing a layout for the off-site facility, a layout for an on-site STAT Storeroom, and staffing and inventory levels for the Avera Distribution Center.  NML also will be on-site for the "Go-Live" which is expected to be late 3rd quarter or early 4th quarter 2009.
 
According to Mark Brunick, Director Materials Management for Avera Mckennan, "We chose National Medical Logistics as a result of our continued relationship with them and initial recommendations in December 2008. Avera McKennan was ready to implement the next phase of the conversion and NML was our choice to support the effort."

The Sales & Operations Planning series continues with part 3 - The Inventory Plan.  As you may recall from our last issue, the Demand Plan was performed to set the stage for supply requirements, and is one of three Best-In-Class attributes for overall inventory optimization, followed by transparency and multi-echelon deployment.  Through the demand planning process we determined what and how much inventory will be required across the planning window by aggregating and forecasting supply demand requirements.  Using this information, the Inventory Plan is developed.  This plan determines how much inventory we wish to store, given what we think we're going to need from the Demand Plan, and how and where we wish to deploy it by analyzing specific individual customer/item/location classifications.
 
The Inventory Plan can be broken down or decomposed into smaller components which includes the deployment strategy (where - single or multi-echelon), and the stocking plan (how much - cycle stock, safety-stock, reorder process, etc).
 
With respect to the deployment strategy, a very basic example is a single hospital which receives bulk deliveries into its storeroom from which PARs are supplied. If each area is managed separately, you have a single echelon.  If you integrate and consolidate the planning, management, and visibility of the PARs and the storeroom, then you have a two-tier or a multi-echelon approach.     As we all know, the complexity can increase dramatically by including other forms of supplies: OR, pharma, lab, jan-san, you name it, and other locations within the hospital.  Now add other hospitals, and care-delivery points; such as warehouses and service centers if you have them; then factor in distributors and manufactures (consigned inventory), etc and you have a very real and quite complex supply-chain.  To read more, click here.