Fully automatic delivery chain reduces procurement costs

Feature Article | February 3, 2003 by admin

Benefits of VMI for suppliers and customers

Benefits of VMI for suppliers and customers

Perfect delivery chains are not just a factor of the physical material flow, but are also determined primarily by ensuring a fast and reliable flow of data. As a result, electronic procurement via the Internet is becoming increasingly important at both large concerns and small- and medium- sized companies (SMEs). Market studies indicate that a considerable proportion of spare parts and components – 20% to 40% – will be procured online over the coming years. Online shops and electronic marketplaces devoted to specific industries are a first step in making systematic use of the Internet for order data. This in itself greatly facilitates ordering and processing procedures. Fully automated ordering processes between dealers and suppliers are made even more efficient and cost-effective.

Vendor Managed Inventory

However, Vendor Managed Inventory (VMI) is by far the fastest and most convenient way of electronic dealing. In this scenario, the supplier takes charge of automatic storage management for his direct customers. The supplier has direct access to his dealer’s inventory and sales forecasts. While the customer coordinates the ordering process in a conventional, decentralized system and hopes for a fast delivery (pull principle), the supplier uses VMI to obtain all key data such as inventory levels, sales made, shortfalls or sales forecasts online in order to initiate and perform the entire ordering process fully automatically. The supplier therefore decides the time and the quantity of goods supplied to the customer (push principle).
Both sides profit from this new and intensive means of electronic business. While the supplier increases the level of service for his customers quite markedly, customers for their part are able to significantly reduce material and process costs.

Automated ordering process

These advantages also benefited Kistenpfennig AG who, in the second quarter of 2002, implemented VMI for the delivery chain to its supplier FAG Kugelfischer AG. The Schweinfurt roller bearing group FAG Kugelfischer Georg Schäfer AG is one of the largest companies in its sector. Last year, the Group recorded sales of _2 billion worldwide. Kistenpfennig AG is a long-standing and important partner for FAG Kugelfischer. The company has ten sites throughout Germany.

Technical background

Technical background

FAG Kugelfischer commissioned the Eschborn IT service provider HLP with introducing VMI. FAG Kugelfischer uses SAP R/3 Release 4.6B which maps the entire VMI process at the supplier’s. Kistenpfennig uses a customized software solution, which supports the complete VMI process at the customer’s. The linkup between the two companies was achieved via the Internet. Data is exchanged in the form of standardized XML messages (SAP-XML) via https. FAG Kugelfischer uses the SAP Business Connector to send messages. This has been used to create special programs for sending and receiving messages. Kistenpfennig in turn uses a customized solution for this purpose.
The project was launched in April 2002 and went live in August 2002. The implementation phase took only eight weeks. The ERP systems used by both companies have since been working together entirely automatically. Data integrity is ensured at all times. Much of the project work involved design, coordination and testing. Strict management and the importance attached to communication on both sides contributed to the project’s success.

Shelves are filled automatically

Graphic

Graphic

For several months Kistenpfennig AG has automatically been providing FAG Kugelfischer with daily information on its customers’ inventory situation and order levels complete with details of planned sales. The supplier FAG uses this information fully automatically to determine material requirements and generates SAP R/3 customer orders in the sales component (SD) of its own ERP system. The order confirmation is then returned automatically via the WebEDI (XML) to Kistenpfennig’s customized ERP system. When the order confirmation is received, the dealer creates an order in the purchases module. By way of confirmation, Kistenpfennig AG’s system provides the supplier FAG with the order number for entering in the customer’s order. The ERP system at FAG Kugelfischer supplies Kistenpfennig directly with a delivery note and invoice. To ensure the procedures remain transparent for Kistenpfennig, the wholesaler is able at any time to determine the progress of the orders by employing a user-friendly web application.

About HLP

About HLP

The Vendor Managed Inventory undoubtedly requires considerable trust between the various partners in a supply chain. This new type of automatic processing results in a supply chain where the scheduling and outlay can scarcely be improved. The benefits for the dealer are apparent – namely, reduced storage levels, shorter response times and faster delivery. But suppliers also profit significantly from VMI. The level of trust that is built up often results in a loyalty between the customer and supplier that lasts for many years.

Mirko Heger

Mirko Heger

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