Effectiveness of VMI at an FMCG company

Abstract

Today, every company is feeling the pinch with sales margins fast disappearing due to the increasing clutter in the industry. In such a scenario, supply chain efficiencies can make all the difference and for this, visibility across the chain and smooth information flow are the key. VMI is a proven supply chain strategy that reins in the bullwhip effect. Marico, a Rs 1200 crore Indian FMCG player has implemented VMI as a part of improving its supply chain performance. This project is about analysing the VMI at Marico, diagnosing the problem areas and suggest recommendations to overcome those. Upon analysing the supply chain of Marico, it was found to be operating on a monthly demand basis, with the month being divided into 3 blocks of 10 days each. But with VMI trying to service demand on a daily basis, it is imperative that one bases the model on daily demand, or at least on a reasonable proxy for the same. The model was refined and a conceptually sound model for periodic replenishment was proposed. 29/08/2006 Page 5 Seasonality is an issue that is not addressed by the current model. This was incorporated by suggesting a model which takes into account data from similar period in the previous years. Another matter of concern is that the SKU plans do not clean off the promotion effect of the previous months. Some other issues are those of varying the replenishment frequency to optimise inventory being held and looking at long term overall transportation costs.