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The various steps in figure may be explained as follows: -
Step 1. The customer sends information on items sold to the distributor. This information may be collected by bar-coding and scanning technology and transmitted to the distributor by Electronic Data Interchange (EDI) or the Internet.
Step 2. The distributor processes the information and forwards the acknowledgement to the customer giving details of the quantities and descriptions of the products to be delivered, the delivery date and destination, and releases the goods.
Step 3. The distributor collects detail of all customer order which are consolidated and sent daily to the manufacturers via EDI or the Internet.
Step 4. The manufacturers replenish the distributor's stock.
Step 5. The distributor invoices the customer who remits payment. Very large customers may transmit their requirements directly to the manufacturers from whom they receive direct deliveries.
Normally, VMI implementation involves four stages: -
Preparation. In addition to initial negotiations between customer and supplier and setting up project teams with clearly defined roles and responsibilities, this stage involves Collaborative Planning, Forecasting and Replenishment (CPFR), the aim of which is to minimise inventories and focus on value-added process activities. By focusing on the flow of supply to consumers without the complication of inventory, the project participants can often discover and eliminate previously undetected bottlenecks in the flow.
Pre-implementation. This is an extension of CPFR involving the determination of forecast quantities, safety stocks, lead time, services levels, key performance indicators and ownerships issues.
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* Contributed by -
Guruprasad Pasupulety,
MBA - Batch of 2007,
Tallinn University of Technology, Estonia.
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