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THE ULTIMATE GUIDE TO

VENDOR MANAGED INVENTORY


Learn how to dramatically cut material costs, reduce inventory burden,
and free up hours of your time.
OUTLINE

01 INTRODUCTION

02 THE DIFFERENCES BETWEEN A


CONSIGNMENT & VMI

03 THE BRUTAL TRUTH ABOUT EXPENDABLE


INVENTORY & WHAT TO DO ABOUT IT

04 PROCESSING COSTS: WHAT POS COST


YOU & HOW TO AVOID IT

05
10 CRITICAL SIGNS YOU NEED A VENDOR
MANAGED INVENTORY

06 IS VENDOR MANAGED INVENTORY RIGHT


FOR YOUR AIRCRAFT EXPENDABLE NEEDS?

07 HOW TO SET UP YOUR VENDOR


MANAGED INVENTORY
THEULTIMATE GUIDE TOVENDOR MANAGED INVENTORY

01 INTRODUCTION
Youre tired.

Tired of having to source, process, and chase high consumption and routine expendable and
consumable material.

You put too much time, money and effort into getting what you need when you need it.

In a perfect world, this material would automatically replenish itself on your shelves, as you need it.

In the following pages, well talk about vendor managed inventory, how it can relieve many of your
expendable and consumable pains, dramatically reduce your total costs and regain hours of
productivity or simply more time with your family.

Its a great strategy and if you're an airline, MRO, or military who consumes a high volume of
expendable and consumables, this guide is for you.
THE ULTIMATE GUIDE TO VENDOR MANAGED INVENTORY

02 THE DIFFERENCES BETWEEN A


CONSIGNMENT & VMI.
Which is the MOST valuable to you?
You cant decide.

Will a vendor consignment or a vendor managed inventory, VMI be the best option for your
aircraft material needs?

These terms get thrown around interchangeably, but theyre different. We wouldnt call a zebra a lion
now would we?

Lets take a look at the relationship of these two inventory strategies


RELATIONSHIP BETWEEN A VMI & CONSIGNMENT
There is a lot of confusion when it comes to the relationship between vendor-managed inventory
and consignment inventory.

A VMI is when your vendor is managing the supply of your inventory. Whereas, a consignment
relates to the ownership of the inventory. Neither of them is dependent on one another.

You can have a VMI that is not a consignment inventory, you can have a consignment thats not a VMI,
and you can have inventory that is both a VMI and consignment.

If your head is now spinning, lets explain it more


THE ULTIMATE GUIDE TO VENDOR MANAGED INVENTORY

WHAT'S A VENDOR MANAGED INVENTORY (VMI)?

In the International Journal of Advancements in Research & Technology, Assistant Professor


Poonam Lakra defined VMI well:

"Vendor-managed inventory (VMI) is a family of business models in which the buyer of a product
(business) provides certain information to a vendor (supply chain) supplier of that product and the
supplier takes full responsibility for maintaining an agreed inventory of the material, usually at the
buyers consumption location (usually a store). A third-party logistics provider can also be involved to
make sure that the buyer has the required level of inventory by adjusting the demand and supply
gaps. Vendor-Managed Inventory (VMI) is a planning and management system that is not directly tied
to inventory ownership.
Lets say you need 500 high demand consumables, in stock, at all times.

It gets really difficult to source, process, and chase these items every time your inventory runs
low or is depleted.
At Skylink, we make this process as simple as possible for our customers. You and a Dedicated
Account Manager, would come up with a predetermined forecast for your material needs. A minimum
stock level would be set and an initial provision would be sent to you. Once you hit your minimum
stock level, an automatic replenishment would be sent by Skylink.

Overtime, Skylink monitors your consumption patterns and adjusts your stock levels.

With this example, Skylink manages the supply of your inventory. Once its at one of your
facilities, you own the material.
THE ULTIMATE GUIDE TO VENDOR MANAGED INVENTORY

BENEFITS OF VMI
Based on the journal; The comparative study of consignment and vendor managed inventory
with special reference of cost structure, Poonam Lakra outlines 4 key benefits to a VMI:
1. Improved customer service. By receiving timely information directly from cash registers,
suppliers can better respond to customers inventory needs in terms of both quantity and location.

2. Reduced demand uncertainty. By constantly monitoring customers inventory and demand


stream, the number of large, unexpected customer orders will dwindle, or disappear altogether.

3. Reduced inventory requirements. By knowing exactly how much inventory the customer is
carrying, a suppliers own inventory requirements are reduced since the need for excess stock to
buffer against uncertainty is reduced or eliminated.

4. Reduced costs. To mitigate the up-front costs that VMI demands, Fox suggests that
manufacturers reduce costs by re-engineering and merging their order fulfillment and distribution
center replenishment activities.

WHEN TO USE VMI & SOME DOWNSIDES


You should use a VMI when your inventory has gotten out of control.

Youre spending too much time and money sourcing, processing and chasing orders. Youre
constantly out of stock for high usage material, or youre overstocked, unnecessarily tying up capital
in poorly planned inventory.

Keep in mind what your core activities are. If


manning inventory is not one of them, you
should adopt a VMI solution.

Just know that it does come with some


downsides. The biggest one is youll be giving up
control of part of your business. You must make
sure you trust your VMI partner. Do not make
the mistake of thinking a bigger partner (OEM) is
better. This is surely not the case.
THE ULTIMATE GUIDE TO VENDOR MANAGED INVENTORY

WHAT IS A VENDOR CONSIGNMENT?


Inventoryops.com defines a consignment inventory as inventory that is in the possession of
the customer but is still owned by the supplier. In other words, the supplier places some of his
inventory in his customers possession (in their store or warehouse) and allows them to sell or
consume directly from his stock. The customer purchases the inventory only after he has resold or
consumed it.

There are many approaches to a consignment.

A simplified example would be if Skylink stored 100 high usage items at your facility. You would be
billed as the items were consumed.

BENEFITS OF VENDOR CONSIGNMENT


The benefits are obvious. You will not have to tie up capital in inventory. However, this does not
mean that you will not have carrying costs. Youll still incur costs related to storing and managing the
inventory.

The consignment inventory model is most effective with service parts for critical equipment where
you would not stock certain service parts due to budget constraints or demand uncertainty. The
consignment inventory will allow your supplier to provide a higher service level (by having the parts
immediately available) and save expedited processing and freight costs.
A WORD OF CAUTION ABOUT VENDOR CONSIGNMENT
A consignment inventory should not be used just as a localized cost-cutting tactic. Don't pressure
your supplier into providing consignment inventory to eliminate your investment in inventory.

While this may reduce your costs, its just moving these costs from you to the supplier. A
consignment inventory will add these costs to the supply chain. Theres always additional costs
associated with managing the consignment process. The supply chain will have to absorb more costs
without any meaningful benefit and youll eventually pay for it. Be careful!

Now you know the differences between a vendor consignment and VMI inventory strategy. Youve
read the benefits and the downfalls. Now what?

Its time to have a discussion with your material partner.


THE ULTIMATE GUIDE TO VENDOR MANAGED INVENTORY

03 THE BRUTAL TRUTH ABOUT


EXPENDABLE INVENTORY & WHAT
TO DO ABOUT IT
Inventory holding strategies havent changed much in the past 30 years. Airlines still cling to the just-
in-case mentality. And because of that, excessive inventory is costing airlines $10 billion per year
(21% of total inventory value).
WHAT ARE YOUR EXPENDABLES COSTING YOU?
The management of consumables and expendables is often badly done. Poor planning and
forecasting leads to panic buying and overstocking.

Because aircraft expendable and consumable unit prices are low, they often get little attention and
50% of what is purchased is never used and wasted. When you ship these parts under critical / AOG
time frames, it costs five times as much as routine parts shipments.

You spend time sourcing, processing, and chasing these orders, but the total cost mindset is
forgotten. You focus a lot of your energy on the unit price. Its cheap, so you forget the costs of
processing, shipping and storing the material.

If you spend $1,000,000 a year on aircraft expendables and consumables and waste 50%,
$500,000 is wasted. Even if you waste only 10%, its still $100,000 that didnt need to be wasted.
THE ULTIMATE GUIDE TO VENDOR MANAGED INVENTORY

MROs
MROs have a huge burden as well. This is true for private, conglomerate, and airline MROs.

Their pain is the locked value of spare parts and other MRO inventory sitting on shelves. On average,
an MRO has the equivalent of between 2 - 5 percent of annual sales tied up in unused--often
never used--inventory.
CONTROL YOUR AIRCRAFT EXPENDABLE & CONSUMABLE CONSUMPTION
Dont panic. Despite these statistics, things get better. Its about taking the time to step back and look
at the big picture. Where are your biggest issues? Where do you need help? Answer those questions and
start brainstorming.
When it comes to aircraft expendables and consumables,
there are 3 strategies that will make your aviation life
much easier, and they have the potential to save you a ton
of time and money on inventory.

1. MAINTENANCE CHECK KITTING


Build kits for all your maintenance checks. This means sending out an RFQ for the 50 - 150
components you need to satisfy your maintenance check to your trusted material partner. Then
they'll send you a kit of all the components you need.
By following the $ave by Consolidating strategy, youll cut your sourcing, processing, chasing,
and freight costs by at least 30%.

Maintenance check kitting can be used for line maintenance, A - D checks, modifications, standard
RFQs of 10 - 1,000 parts, and any other maintenance projects you experience.

2. VENDOR MANAGED INVENTORY


Adopting a vendor managed inventory will allow you to differ most of your inventory risk onto
your trusted material partner. Theyll do the forecasting, planning, and provisioning.

Once your inventory is established and as you consume the material, theyll automatically send you
replenishment inventory. Youll never have to cut or chase another PO.

You can downsize your warehouse space, reduce your holding costs, and eliminate processing costs.
Its a great expendable strategy if you have the consumption history.
THE ULTIMATE GUIDE TO VENDOR MANAGED INVENTORY

3. CONSIGNMENT
When you consign inventory, your trusted material partner will store their inventory at your
facility. You'll then be invoiced only when you consume it.

The consignment option is great when you have consumption history and your partner can create an
accurate demand forecast. Once the consignment is set, youll pull from their inventory when you
need a component.

The brutal truth is, expendable inventory is expensive. It doesn't matter if the unit price is $.10
or $100, it all adds up to significant waste. Review your current strategy, note your issues, discuss a
better way, and adopt a total cost mindset. It'll save you a ton of time and money.
THE ULTIMATE GUIDE TO VENDOR MANAGED INVENTORY

04 PROCESSING COSTS: WHAT POS


COST YOU & HOW TO AVOID IT
Youve decided what you need to buy. Now, what?

You madly process POs. One PO after the next. 1, 3, 150 POs sent every day. This is all you do. Source,
process, chase, and repeat. It must get done, but

Do you know how much processing a PO costs your operation?

Each time you cut a purchase order you spend between $50 - $200 in processing costs.

Calculating the cost of a purchase order gives you a high-level look at your processing habits and
how much they cost you. And its a great I-know-what-Im-talking-about
conversation starter with your CFO. Try it.

Once you no longer focus just on direct price, youll begin to see that all of your actions have a
reaction.

PO processing costs are one of them


THE ULTIMATE GUIDE TO VENDOR MANAGED INVENTORY

START CALCULATING THE PROCESSING COST OF AN AIRCRAFT PART


PURCHASE ORDER

Each operation is different when it comes to calculating their PO costs. Theres a lot of best practice
theories. Just like everything else. Theyll tell you to calculate all of the salaries for those who deal
with processing POs and divide it by the amount of POs processed in the given period.

Thats not entirely true.

There are many ways to debunk this calculation. The best place to start is for you to concentrate
on how you can reduce duplication. Not just inside your company, but eliminate it throughout your
entire supply chain.

Now, this doesnt mean ignore all variable costs. Some operations will want to factor those into their
calculation as well.

When you begin to calculate your cost, take a dive into your fixed and variable costs. If it makes
sense, add them into your calculation.

FIXED OVERHEAD COSTS


Here's a list of some fixed costs to consider:
Procurement salaries and hourly wages
Administrative overhead
Infrastructure
Employee benefits
Office space
Technology

VARIABLE COSTS
Now, take a brief look at your variable costs:
How many times do you have to follow-up with a supplier
Telephone and internet charges
Physical goods like paper, pens and other office supplies
THE ULTIMATE GUIDE TO VENDOR MANAGED INVENTORY

Once you have your cost, its time to think of how you can reduce, or better yet, eliminate these
costs.

AND THAT'S WHAT A VENDOR MANAGED


INVENTORY DOES--ELIMINATES
PROCESSING COSTS.

You now know what your processing costs are. What are you going to do about it?

One of the single biggest strategies you can adopt is a vendor managed inventory for your high
usage expendables and consumables.
But let's shed some light on what this means for you.

1. Depending on the volume of POs you cut, expect to cut your processing cost by at least 50%.

2. Dramatically reduce your shipping costs.

3. Lower your inventory burden and holding costs.

4. Reduce your AOG occurrences.

5. Increase your productivity and efficiency.

Getting started with a vendor managed inventory solution is really simple. Just read this post
and begin compiling your high usage material list.

Then, let your supply partner do the rest. Simple. Right?


THE ULTIMATE GUIDE TO VENDOR MANAGED INVENTORY

05 10 CRITICAL SIGNS YOU NEED A


VENDOR MANAGED INVENTORY
You need a change. What youre doing isnt working. Things arent getting better and youre more
stressed than ever. You want an idea that will give you more of what you need. Time.

But the real issue is what are you going to do about it? A vendor managed inventory is a solution
that will resolve a lot of your time and cost problems. And, its easy to implement. But first, lets
understand some of the issues itll help you resolve.
1. YOU SPEND A TONOF TIME PROCESSING ORDERS
Every time you cut a PO you spend between $50 - $200 just to process the PO. Just think. How many
POs do you cut a week? 10, 15, 200?

If its 200 youre spending $20,000 a week processing POs. Yikes!

Im not sure whats worse than that, but if youre cutting 200 POs then youre also sending out a ton of
RFQs. After you source, chase, and process, your purchasing teams time has been dried up. Theres
no room for flexibility.

A vendor managed inventory solution will dramatically cut your sourcing and processing costs.
THE ULTIMATE GUIDE TO VENDOR MANAGED INVENTORY

2. YOUR SUPPLY CHAIN IS DIFFICULT TO NAVIGATE

Have you purchased 10 aircraft parts from 10 different companies? Are you often confused on how to
process a list of 150 expendables and consumables?

With millions of components and unlimited options of suppliers, sourcing, processing, and
tracking orders is time-consuming.The goal for any procurement operation is to efficiently procure
material from the right source and to get it at the right time.

If the procurement team is blindly ordering, operating costs will be on the rise.

Using a vendor managed inventory will help you create an efficient supply chain. With auto-
replenishment, you won't have to process or chase POs. Time and money are saved instantly.

3. YOUR INVENTORY IS ROBBING CASH

Inventory is a huge cash burden. Most


airlines spend 20% in holding costs per
year. Why not use that cash to fund your
core activities instead?

When you tie up cash in inventory youre


making a choice. An opportunity cost.
Could this money have generated more
money invested elsewhere in your
operation? On your core activities?

With a vendor managed inventory youll only have what you need for near-term demands. As
you consume this material your trusted advisor will automatically send replacement inventory. All
you have to do is take receipt of these goods and begin consuming.

Theres no more reason to stock material you wont use or to stock anything at all without a
trusted advisors support.Reduce your inventory burden and let a VMI solution do the heavy lifting
for your expendables and consumables.
THE ULTIMATE GUIDE TO VENDOR MANAGED INVENTORY

4. YOU'RE PURCHASING THE SAME ITEMS

Do you purchase the same aircraft material regularly? With processing and shipping being a real
cost, it makes sense to automate this process. This goes for both rotables and expendables. You
know you have a need, you know what part you need--so automate it.

With a vendor managed inventory solution, as you consume material your trusted material advisor
will be alerted and theyll send you replenishment stock.

5. YOU NEED BETTER RELIABILITY


Your supplier database is huge. You go to the best price. But with this procurement mentality comes
unreliability. Youre stuck having to chase orders, get people on the phone, and get timely
replies to your requests. Often, it seems impossible.

How can you get a fair price with total support?

With a VMI solution, youll get a Dedicated Account Management (DAM) team. Youll know
exactly what and when youll get certain material. Theres no need to chase or expedite orders. Its
all taken care of for you.

6. ARE YOU HAVING TO RESOLVE PO ISSUES?

When vendors cancel orders you have to


pick up the pieces. You have to find
solutions and organize contingency plans.
Even when you can find a solution, its
frustrating.

With a vendor managed inventory


solution, theres no canceling. Theres
nothing to worry about. The material comes
in as you need it.
THE ULTIMATE GUIDE TO VENDOR MANAGED INVENTORY

7. YOU SPEND A LOT OF MONEY ON FREIGHT


Take a look at your freight costs. How much are you spending
compared to your purchase price? 5, 10, 15%?

With an international purchasing operation, the cost adds up.


Especially if youre not following a $ave by Consolidating purchasing
principle.

With a VMI solution, your replenishment inventory is consolidated and shippedeven with
other orders that fall outside of the VMI. This saves money on freight. It also reduces your need to
express ship small parcel or AOG ship urgent expendables.

The freight savings is a big advantage.


8. YOU NEED PREDICTABLE INVENTORY

Do you purchase material to cover what you think" you need? This is a huge waste of capital and
gives you no data on consumption patterns. This is anything but predictable.

With a VMI solution, a forecast is modeled and revised over time. Youll see what youre consuming
and when. Youll see what items need more coverage and what items need less. Youll have an up to
date inventory cost and youll also be able to see what you will need in the near future for
replenishment. Youll see exactly what you need and the money tied to it.
9. YOUR POINT OF CONTACT IS A ROBOT OR INHUMAN

This is a controversial one. Theres nothing more frustrating, from a procurement standpoint
than having to dial an 800 number and speak to someone youve never talked with before.
Where's the trust in that? Especially when youre AOG. Relationships are built on trust and no website
or 800 number can deliver on the human side of our procurement world.

With a VMI solution, youll get a 24/7 Dedicated Account Manager. They are your go-to resource
for anything you need.Theres also a dedicated team behind them to manage your forecast, ensure
material meets your replenishment timeline and help with any issues that may arise.

A VMI solution will resolve many of your procurement issues. The first step is to look at this list
and really see what issues you deal with. Which ones resonate with you? The next step is to
discuss this with a trusted material advisor and begin resolving them with a VMI solution.
THE ULTIMATE GUIDE TO VENDOR MANAGED INVENTORY

06 IS VENDOR MANAGED INVENTORY


RIGHT FOR YOUR AIRCRAFT
EXPENDABLE NEEDS?
Its common business knowledge that excess inventory is a liability, but its also known that you
cant sell what you dont have. Traditional inventory management approaches force you to
purchase excess inventory to pad against stock-outs. You literally have to decide whats worse for
your business: running out of inventory or carrying too much.

The inventory model you use right now is challenging:


The accuracy of your forecast is limited, so you risk buying too much or too little stock.

You purchase and own the inventory, regardless of whether you sell it.

You have limited visibility into whether your suppliers can even fulfill your order.
Thats where vendor managed inventory plays an important role
THE ULTIMATE GUIDE TO VENDOR MANAGED INVENTORY

WHAT IS VENDOR MANAGED INVENTORY (VMI)?


Vendor managed inventory is a close relationship between you and your material partner who
works with you to share the burden of inventory management.

The goal is to make sure you only buy what youll use. Youll maintain close contact with your
aircraft material partner, through technology, so that you purchase stock in smaller batches, more
frequently and automatically. As you begin to receive stock in smaller batches, the burden of
inventory management is shifted from you to your material partner, who is pushing inventory to you,
based on real-time demand.

Instead of forecasting yearly maintenance projects, or last minute requisitions, and buying a bunch of
expendables to ensure your maintenance projects will go as planned, youll be in constant
communication with your material partner. You'll constantly push your inventory counts to your
material partner, who will constantly maintain your inventory, making frequent and smaller
shipments.

The vendor managed inventory is usually handled through modern technology. This technology is
called EDI (electronic data interchange) and it hooks up with your suppliers ERP system.

Now, that you have the overview of what VMI is, lets see if the benefits are right for you.
THE ULTIMATE GUIDE TO VENDOR MANAGED INVENTORY

COST BENEFITS
VMI buries its head deep into your supply chain and
allows your supplier to better optimize the planning
and replenishment processes. Through this, you get
improved visibility and control of the total order
planning and execution steps. Remember the days
when you received a requisition order, you cut 13 POs
and then had to process and track all the POs?

The VMI approach helps reduce most of the administration burdens.


Because your supplier holds inventory on-site or near you, it allows you to have instant access. This
immediate access allows you to pull inventory as you need it and only pay for what you consume.
This significantly reduces your inventory investment and increases your inventory turns.

The VMI approach is about a close partnership and because of this, your supplier is responsible for
replenishing stock. This includes ordering the inventory, managing the logistics to ship the material,
and counting the inventory. Since youll be passing on tasks that would normally be done by you,
youll see an overall reduction in your inventory costs and youll have the opportunity to reinvest
that capital into other parts of your operation.

Because this is all forecasted, youll pull in inventory needed to meet your maintenance project
demands, eliminating minimum order quantities. Your supplier may choose to replenish the VMI
inventory based on predetermined minimum order quantities internal to their company, but that
doesnt concern you. The inventory liability largely resides with the supplier and they have more
of an incentive to eliminate unneeded inventory and costs into the supply chain.

Most people see inventory as a bad thing but in reality, without it, you cant do your job effectively.
The inventory in a VMI program is often an asset worth investing in because it decouples upstream
and downstream supply chain partners from random order fluctuations, forecast inaccuracies,
and other variations in demand and supply. Inventory in a VMI program can be positioned at the
best place for quicklyresponding to variations in the supply chain and removes the need for each
supply chain node to maintain their own buffer of inventory.

This can significantly reduce the overall supply chain inventory and the associated costs of
maintaining such inventory.
THE ULTIMATE GUIDE TO VENDOR MANAGED INVENTORY

DELIVERY BENEFITS
By having the inventory on-site or near you, it enables
you to pull inventory quickly and efficiently based on
your maintenance needs, reducing lead-times to zero.

VMI helps to compensate for the lack of system integration between supply chain partners by
allowing inventory to reside within the suppliers ERP system until pulled by you. By keeping
inventory within the suppliers system, it provides a more accurate input into the material
requirement planning process, as well as provides a more accurate demand history that can be
diluted by minimum order quantities and other planning variables. This enables your supplier to
more accurately predict your demand and improve delivery performance.

Since inventory is near you, VMI provides a more reliable mechanism for delivery compared to
traditional ordering approaches such as discrete POs. By providing a reliable delivery mechanism,
VMI removes variability from the delivery process and allows you to improve the delivery of your
maintenance projects.

QUALITY BENEFITS

VMI facilitates a pull-based approach that helps prevent excess inventory from being pushed
into your supply chain. By reducing the inventory levels within the supply chain, it drives both you
and your supplier to quickly identify quality issues in the material because youre using the inventory
close to real-time instead of future maintenance projects. Theres no excess inventory available in
the channel to allow maintenance to continue, which traditionally helps mask quality issues.

VMI also promotes a quality conscious culture because the inventory resides on the suppliers books
until pulled by you. Whether people like to admit it or not, a supplier will be more responsive in
addressing and resolving a quality issue if the inventory is on their books. Its a cold hard fact.

When most supply chain professionals discuss VMI, they often quote the
benefits as it relates directly to their company. Although these benefits are
valid and provide great value to a company, the true significance is often
overlooked with this narrowly focused view. The real benefits of VMI
relate to driving a lean supply chain that is centered on creating an
end-to-end pull system, based on end user demand that cascades
through the supply chain.
THE ULTIMATE GUIDE TO VENDOR MANAGED INVENTORY

07 HOW TO SET UP YOUR VENDOR


MANAGED INVENTORY
Your aircraft expendable inventory is like a childs bedroom. Messy and out of control. You have stock
in items that you dont need and youre AOG for items you should have planned for.

Its a mess. Youre frustrated that time and money have been wasted. All you want is for the craziness
to stop. You want to stock the things you need and plan for the rest.

What you need is vendor managed inventory. Its an aircraft expendable dream. Have what you
want and only consume what you need. Once you hit a minimum stock level, an automatic shipment
of replacements is sent to you. Easy!

But how do you decide if its right for you?


THE ULTIMATE GUIDE TO VENDOR MANAGED INVENTORY

IS VENDOR MANAGED INVENTORY RIGHT FOR YOU?


If youre constantly purchasing expendables and consumables, then the plan is right for you.
But, err on the side of caution. Its very important that you and your supplier understand and accept
each other's expectations. Theres nothing worse than getting into a sinking partner-ship. Get it?

During the initial phases of implementation, you and the supplier should clearly outline your
expectations and performance metrics.

You should understand each others business model and company visions. Its important to gain this
level of understanding in the early stages so that both companies are working towards one common
goal.

To get yourself started, answer these 3 questions:


Do I purchase expendables on a regular basis?

Do the majority of the expendables I need exceed 1 piece per year?

Do I have a partner, who I know and trust, with a vendor managed inventory?

BEGIN SETTING UP YOUR VENDOR MANAGED AIRCRAFT EXPENDABLE INVENTORY

Youre ready to take the plunge into the deep dark vortex of proper aircraft inventory management.
You dont want to spend so much time dealing with aircraft expendables. You want what you need
now--no more, no less.

First, you must be committed to solving your expendable problems. Once you are, the rest is easy.
THE ULTIMATE GUIDE TO VENDOR MANAGED INVENTORY

1. Run your consumption report and determine stock items

The best option you have is to run a simple consumption report for the past two years. Ideally,
breaking this down into monthly consumption will provide the most accurate data in further steps.
Itll help your supplier narrow in on the safety stock and reorder points with more effectiveness.

Its important to have a consumption report. If you dont then we can determine the items you
need based on OEM data, known events, and unknown events, but this will take you a lot more time.

Once you have your consumption report, have maintenance review it. They may have hangar floor
insight that you could use when building your vendor managed inventory list.

Dont worry. This wont be perfect starting off.Your vendor managed inventory will be properly
monitored over time, and improved with adjustments as your demand pattern shows trends.
THE ULTIMATE GUIDE TO VENDOR MANAGED INVENTORY

2. Set allocation quantity

From here, it's up to your supplier. You need to get them the items you want to be covered and the
consumption and theyll do the rest.

Theyll look into your consumption habits and set an initial allocation quantity. This will be your
recommended stock quantity. They'll pull this information from your past consumption data. Their
goal is to get each line item into a daily consumption statistic.

Theyll set your allocation quantity based on daily usage and maintenance consumption
recommendations.

3. Set safety stock & determinea reorderpoint

Your supplier will then begin running more detailed statistics. Dont worry, its not too complicated.
They dont need a Ph.D. in math. They just need a brain and a spreadsheet.

When Skylink begins doing these calculations, we stress that you try to have a monthly
consumption report. Itll help your supplier determine your daily requirements and forecast a more
accurate reorder point.

Your partner will use a standard deviation, service level, and lead time factor to determine what
your safety stock should be. If you only have a yearly consumption, your standard deviation will be
the same for all part numbers. Over time, your supplier will correct this by watching your
consumption habits.

Once the safety stock is established, a reorder point is set.

4. Monitor & Replenish

The final step for you and your supplier is to watch your
consumption habits. Anytime you hit a reorder point (or
minimum inventory), replacements will be sent to you in the
form of your allocation quantity.
THE ULTIMATE GUIDE TO VENDOR MANAGED INVENTORY

Over time, your supplier may increase or decrease your reorder point based on the
trends they see. Remember, if you dont have detailed consumption reports
starting out, thats okay. Itll take your supplier some time to learn about your
consumption habits. This is very important to remember so you do not think they can
create a perfect model with very little information. Remember, theyre not Harry
Potter.

These steps will get you moving in the right direction to a stress-free expendable
life organized by a Vendor Managed Inventory strategy.

START SAVING TIME AND MONEY!

A STREAMLINED PURCHASING SOLUTION


FOR ALL OF YOUR MATERIAL NEEDS
Vendor Managed Inventory will reduce
inventory costs, free up countless
hours of your time processing orders
and ensure that you have the aircraft
parts you needwhen you need them.

CLICK HERE TO GET STARTED!

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