Auto Logistics and Supply Chain Management Summit 2003,The Practice of VMI in China,1,Agenda,Our understanding of the automotive logistics needs What is VMI definition, procedures and benefits Challenges of VMI in China Case study Brief introduction to China Logistics Company,2,An automotive OEMs logistics needs cover both inbound and outbound operations of parts and finished vehicles,Plant,Suppliers,Consolidation and Loading Center,Service Parts Distribution Center,Logistics for Production Parts,Logistics for Service Parts,Logistics for Complete Vehicles,Dealer,Dealer/ Service Station,Bonded Warehouse for Import Parts,Our understanding of the automotive logistics needs,3,Supply chain management (SCM) is the strategic management tool that coordinates the material and information flows across the value chain to support adaptiveness,4,“Demand-pull” value chain requires the companies to be flexible and able to “control” a large part or the entire supply chain,Suppliers,Manufacturing,Demand indirectly drives manufacturing volume through forecasts,Warehouse,Wholesale/Retail,“Supply-push” Logistics Chain,Suppliers,B2B Exchange,Manufacturing,Direct Delivery,“Demand-pull” Logistics Chain,Manufacturing driven by actual demand,The rate of supply was set by the manufacturer in advance, based on expected demand It was the role of the logistics providers to ensure a just-in-time supply of components,The rate of manufacture is determined on a real-time basis by the rate of demand While this model is more efficient, it requires perfect integration of all logistics operations within one process,Source: Lehman Brothers, A.T. Kearney Analysis,5,Third-party logistics providers (3PLs) can directly, or through a partner network, provide a range of services,Procurement Payables management Supplier payment and consolidated invoicing Vendor performance monitoring and exception reporting Joint process improvement with vendors,Overall freight coordination Full load truck carrying Less-than-load truck carrying Small lot (less than 150 pounds) carrying Order consolidation Delivery scheduling Expediting special / rush orders Returning and reprocessing undeliverable orders Delivery tracing Performance and exception monitoring and reporting,Overall inventory management Optimizing supplier order schedules Optimizing dealer order schedules Certification of incoming shipments Bar coding Performance and exception monitoring and reporting Tracking and Reporting Systems accessible via Internet Material Resource Planning,Order preparation / assembly / consolidation Sourcing of packaging materials Printing of corrugate and/or linerboard materials Labeling Shrink wrapping of cases and pallets,Freight and Distribution Coordination,Warehousing and Inventory Management,Minor Assembly and Packaging,Procurement,6,Difference between traditional business model and VMI model,7,Simplest VMI workflow,Manufacturer,Suppliers,2,3,4,1,The manufacturer approves the purchasing terms with suppliers, including the commonly agreed inventory responsibility and maintenance scheme. The manufacturer sends product activity data to the supplier. This product activity is based on warehouse movement of product consumed at the assembly line level. Based on the agreed inventory maintenance scheme, the supplier edits, approves and releases the suggested purchase order. The manufacturer approves this purchase order and send it to the supplier.,8,Consolidation and Loading Center is commonly used to reduce the complexity in coordinating multiple vendors,Quality of delivery services from vendors to line-side might be different Vendors shipping volume might be very small given more frequent “demand-pull” orders Vendors might need a large line-side buffer to comprise a full-truck load and make-up a safety stock Large line-side area is needed to accomplish unpacking, kitting, and possibly sequencing of parts before feeding to assembly line Individual vendors might rent warehouses for themselves, with limited scale to share with other vendors,Consistent delivery service to line-side Optimal shipping volume to reduce transportation cost and inventory cost Reduced requirement on line-side warehouse space Coordination between suppliers and production line possible to promote synchronization and JIT,How Consolidation and Loading Center Approach Helps,Potential Issues in Simplest VMI Model,9,Win-win situation can be achieved for both manufacturers ,Planning and ordering costs for the manufacturer go down due to the responsibility being shifted to the vendor Improved customer service vendors can better respond to customers inventory needs in terms of both quantity and location Reduced demand uncertainty by constantly monitoring customers inventory and demand stream, the number of large, unexpected customer orders will dwindle, or disappear The manufacturer is more focused than ever in providing good service and the overall service level is improved by hav