Case Study
The previous section outlined the basics of vendor-managed inventory. However, different approaches to VMI occur, depending upon how various companies choose to deploy the process as well as the supporting software. Additionally, there can be industry-specific nuances that need to be considered. The VMI process in CPG is well known but the process in consumer electronics and durables is still being defined. Additionally, differences (and complexities) arise from the following complications:
- Long product lead times—up to 16 weeks from part procurement to product availability on a retail shelf—requiring accurate long-term forecasting
- High price erosion in both parts and SKUs makes carrying inventory prohibitively expensive
- High item dollar value
- High price protection costs due to severe competition in the marketplace
- High end-of-life costs due to high channel inventories in retail channels
- New item introductions every six to nine months
With this in mind, the vendor management inventory process as applied to consumer electronics and durables will be explored. However, it must be kept in mind that the learnings from these industries are equally applicable to other industries as well.
Panasonic’s Inventory Landscape
Panasonic is a respected consumer electronics company and is a leading worldwide supplier of plasma televisions, digital cameras, telephones, and other household consumer products.
The company sells through major consumer electronics retailers—including Circuit City, Best Buy, Wal-Mart, Sears, and Costco. In fact, those top five customers account for more than 50 percent of Panasonic’s business.
The business challenges
The company competes against Samsung, against new competitors such as Dell and HP, and against low-cost Chinese manufacturers. Panasonic’s parent company, Matsushita, generates global revenues of more than $80 billion across various business segments.
After implementing SAP for enterprise resource planning in 2003, and missing revenue goals in 2004, Panasonic brought in new management and launched an initiative to turn the company around. One key part of that transformation was the deployment of a vendor-managed inventory solution.
Panasonic wanted a solution that would focus on the consumer, that would more closely integrate marketing and the supply chain, and that would improve visibility from the factory to the retail shelf.
That’s when Panasonic called on i2 to deploy a proven vendor-managed inventory solution.
The i2 solution
i2 responded with an engagement that included the design, configuration, and operation of a vendor-managed inventory solution.
Starting with a strategic/process engagement, i2 showed Panasonic precisely how the vendor-managed inventory model would work in the consumer electronics marketplace. i2 then configured a solution that met Panasonic’s specific business process and data requirements. Finally, i2 demonstrated how to operate the solution on a hosted, subscription-fee basis and how to extend the solution to serve additional retailers.
The collaborative vendor-managed inventory solution deployed for Panasonic shifts the focus of planning away from the manufacturer and closer to the consumer. The solution can include all key aspects of inventory management, including analysis, forecasting, planning to allocation, replenishment, and order execution.
As implemented for Panasonic, the i2 Vendor-Managed Inventory solution is used to:
- Provide daily feeds of POS and inventory at pre-defined granularity
- Provide promotions calendar, expected lifts, and other planned events
- Analyze POS and planned promotions, and to generate updated sell-through forecast
- Analyze inventory levels to generate new purchase and replenishment plans
- Discover and recommend demand-shaping opportunities
- Execute purchase and replenishment plans
- Approve and execute demand-shaping recommendations
- Provide available-to-promise and inventory reports
The results
Panasonic has realized a number of business and financial benefits since the deployment of the i2 Vendor-Managed Inventory solution.
Before deploying this consumer-oriented solution, Panasonic suffered from misdirected inventory, stock-out problems, and dead inventory in slow markets. Sales and profits were weak, and relations with key retailers were less than ideal.
After implementing the i2 solution, inventory distribution is now completely aligned with consumption, and customer availability jumped from 70% to 95%. The average week of supply in the channel went from 25 weeks in 2004 to just five weeks—and trending downward—in 2005. Unit sales of the targeted plasma television rose from 20,000 the previous year to approximately 100,000 in 2005.
Best Buy, the initial retailer covered by the vendor-managed inventory model, has since elevated Panasonic from a Tier 3 Supplier to a Tier 1 “Go-To” Brand for plasma televisions.
Click here to see Panasonic’s Sr. Vice President of Strategic Initiatives, Mike Aguilar, talk about the benefits and the value of the i2 Vendor-Managed Inventory solution.
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