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Contract Manufacturer Drives Down Costs, Increases Customer Service Via Integrated
Vendor-Managed Inventory Capabilities
Situation
A leading global contract manufacturer, focused on delivering operational services to high-tech companies, needed to take advantage of vendor-managed inventory (VMI) postponement and optimal fulfillment solutions to stay competitive in its low-margin manufacturing marketplace. Its objective was to find ways to reduce inventory redundancy, improve customer responsiveness by reduced cycle times and simplify supplier management and procurement administration. The manufacturer also needed to augment existing infrastructure, while reducing investments in additional personnel, facilities and systems.
Solution
Kuehne + Nagel, a leading provider of integrated supply chain management solutions, was chosen to implement a VMI program for one of the manufacturer's U.S. facilities. Kuehne + Nagel undertook a detailed analysis of the customer's material acquisition, handling processes and systems.
Next, Kuehne + Nagel moved the inventory from the customer's manufacturing site into one its own distribution centers. It also provided a Web-based demand-planning tool giving suppliers visibility to forecasts and inventory requirements replenishment process to support production requirements. Second, it implemented a vendor-management program that simplified the transition of inventory ownership from the manufacturer back to the suppliers.
New material-handling processes also were introduced to improve product flow through manufacturing. Kuehne + Nagel used its supply logistics systems to provide Web-enabled visibility to suppliers, allowing them to review on-hand inventory. Inventory buffer quantities were calculated to trigger demand replenishment via an alarm code notifying the manufacturer and supplier. Using the manufacturer's forecast, it compares on-hand and in-transit quantities and matches them against the buffer level. It generates a supplier "status alert," if the calculation indicates that inventory will fall below agreed-upon levels.
Kuehne + Nagel also managed non-VMI product, comparing the product forecast against materials on hand. This further reduced the administrative burden on the company's procurement department.
Kuehne + Nagel provides the contract manufacturer with global visibility to inbound and out-bound freight - down to the part number and purchase order level -- across the supply chain through the Kuehne + Nagel track-and-trace system. This visibility allows the customer to make commitments to manufacturing or customer fulfillment and increases customer responsiveness.
Results
Working closely with the manufacturer and its suppliers, within 14 months of implementation Kuehne + Nagel:
- Converted more than 85% of inventory to VMI, dramatically increasing annual inventory turns from four to 28 and reducing material obsolescence, driving substantial increases on return on assets.
- Introduced improved operational procedures and visibility tools leading to reduced staff levels by 20% in material handling and 15 % in administration, while improving customer responsiveness for schedule changes and forecast fluctuations.
- Delivered additional value-added services - de-trashing, product integration, inspection, component programming and returns management - that further reduced the manufacturing company's handling costs.
Because of the implementation's success, Kuehne + Nagel was selected to manage another of the company's dedicated fulfillment centers.
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More Information
VMI Overview
Supplier Benefits
Manufacturer Benefits
Other Documents
Supply Logistics Datasheet
Case Study - Manufacturer
Case Study - Supplier |
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