Supplier-Managed Inventory for Central Kitchen Operation

Written By David Wong, DPSM

by David Wong, DPSM

Supplier-Managed Inventory for Central Kitchen Operation

Written By David Wong, DPSM

by David Wong, DPSM

by David Wong, DPSM

Every successful food business operates with an effective inventory management system, which is the core of Supply Chain Excellence. This is a crucial part of running a profitable food enterprise. Without an effective inventory management system, this can lead in over-ordering thus resulting in food wastage, or under-ordering resulting in unfulfilled customer requirements. An important area is adopting Vendor Managed Inventory (VMI) or Supplier Managed Inventory (SMI). This is an effective business strategy that can assist business owners to leverage on the business operation without increasing headcount and industrial technology cost. This can only be possible with a strategic collaboration between preferred suppliers and the food business owners.

the food business owners

Picture extracted from Centralkitchen.co.za

Supplier-Managed Inventory (SMI)

SMI allows both parties the ownership to access to the same system/portal, to view and update the system promptly whenever there is movement of stocks in real time. it can also assist to monitor the stocks promptly so that the re-order point can be set upon operation’s needs.

From the supplier’s perspective, it can allow them to track inventory using allocated minimum, maximum and stock-level re-order point. An indicator will then notify customer’s end, should the allocated stocks level be low, it will notify customers to start to make replenishing from their respective suppliers both local, international and global. Suppliers are then able to track inventory through a variety of reports and live data. This will enable better efficiency in delivery times and forecasted demands more accurately for customer requirement.

On the customer’s prospective, suppliers can be authorized to perform purchasing activities; like creating purchase order, management of small order suppliers and their delivery progress. This helps to cut down re-order time and lead-time while ensuring accuracy and simplify the workflow efficiently. However, to prevent data exposure, a Non-Disclosure Agreement must be enforced upon selection of suppliers.

Supplier-Managed Inventory (SMI)

Image Adapted and Courtesy of BTL Industrial solutions

Inventory Control

This should enable real-time trackingand analysing of inventory levels, as follows:

• Recording sales patterns
• Increase company working capital
• Turning Inventory into cash (Day Sales Inventory)
• Maintaining accurate Inventory records

It helps to plan, control, and organize the goods and materials required for the business. They will enable the customer’s organization to be able to order the right type and amount of inventory to meet the customers’ needs and keep the goods moving off the storage shelves.

Efficient stock allows customer’s organization to have the right amount of stock in the right place at the right time. This will ensure that capital is not tied up unnecessarily, and protects production if problems arise with the supply chain. Example: customize by using “Automatic Order Replenishment” function can reduce the production delays of stock shortages while ensuring orders are met on time.

Sales forecasting will be enhanced with date that comes with an accurate sales report to estimate how much inventory the organization will need to have on hand and beyond. Using past sales figures to forecast future demand and benchmarking it to have an edge over the competitors of the same industry, hence reduce inventory cost and storage space wastage.

Use of barcoding & RFID technology to trigger minimum stock levels and re-order level alert or reminder, identify different SKU information and the location. It can be used for quality control of the stock (expiry or production date). Using First-In-First-Out rotation methods to identify SKU details. Finally, it can be used to create stock Security Awareness. Radio Frequency Identification (RFID) allows business to identify individual products and components, and to track them throughout the supply chain from production to point-of-sale. The system can also be used to trace faulty products quickly and efficiently.

It can be used for quality control particularly if it is produced with a limited shelf life. Stock security will depend on knowing what it has, where it is located and how much it is worth – so good records are essential and stock are protected. Reports will then be generated, and customer can better manage existing inventory on hand for next projected activity. Another important factor is to cut man-hour cost from overtime and headcount on labour-intensive chores and tasking when require for cycle-counting as well as real time inventory numbers for planning.

Inventory Control

Image Courtesy of FoodsafetyBrazil

Just-In-Time Capability

Place Just-in-time Inventory Control into practice by meeting the needs of the business requirement to fill orders set. Use analytic data of consumer and industry trends to find out what is the latest on the market, so that the company are not left with obsolete inventory. This will cut lead-time on logistic aspect. The purpose is to reduce costs by cutting stock to a minimum. Items are delivered when they are needed and used immediately. The risk of running out of stock will be minimized, when the appointed suppliers can deliver on demand. If it is properly managed, it can help the business reduce its costs, achieve promising projected sales and profit, as well as to prepare the business for any uncertainties ahead. This processes that can also refine the stock control system to better manage production planning and space allocation. This will in turn avoid wastage, boost productivity and reinvest capital back to organization.

Just-In-Time Capability

Image Courtesy of CNG Global

Material Requirements Planning (MRP)

An in-depth materials requirements planning can be incorporated to enable the system is to manage inventory more efficiently, to keep adequate inventory levels to ensure required materials are available when needed for consignment fulfillment and production. This system is helpful for customer’s organization with multiple production lines with a large raw materials inventory list for food production. The applications break down inventory requirements into planning periods to keep production running smoothly while maintaining minimum inventory levels.

The main components of the system are to provide inventory status records, master production schedule and product structure records. It is designed to retrieve information of what is needed, how much is needed and when it is needed, this model works backward from the planned finished product to determine the components and required materials needed to create it. The master production schedule and product structure records are to determine inventory requirements while maintaining the lowest possible level of inventory.

This helps programme managers and planner to plan for capacity needs and allocate production time appropriately. The strategy goal of an effective MRP within SMI is to minimize inventory costs while keeping an adequate inventory level to meet customer demand, making sure it is beneficial for the Customer’s Organization.

Considerations in choosing the correct inventory strategy involve an analysis of the cost of carrying inventory and the cost of purchasing inventory, an effective strategy will answer the questions of how much inventory to order and when to order it. Thus SMI helps the customer’s organization to concentrate on their core competency than to manage intensively on their Inventory management that require additional headcount which in turn adds to massive manpower cost.

Conclusion

SMI can provide excellent business solution, but communication is equally important as a supplier who is managing the inventory is also a business partner. Thus, both parties must have strong collaborative process in place, with trust and strong operational capabilities. SMI cannot replace procurement and inventory management activities. However, it can enhance the effectiveness and efficiency of an organization in terms of its approach to strategic operations.


References

Abdul Kareem Mohamed Yasin. (2018). “AI Technologies Enhancing Supply Chain Management”. Retrieved from SIPMM: https://sipmm.edu.sg/ai-technologies-enhancing-supply-chain-management, accessed on 30/10/2018.

Adrian Goh. (2017). “Blockchain Technology-The next Revolution of Supply Chain”. Retrieved from SIPMM: https://sipmm.edu.sg/blockchain-technology-next-revolution-supply-chain, accessed on 30/10/2018.

Jeswin Philip. (2018). “ V.M.I. and Distribution Planning in the Food & Beverage Industry”. Retrieved from https://blog.kinaxis.com/2018/02/vendor-managed-inventory-distribution-planning-food-beverage-industry-heres-something-chew, accessed on 30/10/2018.

Lynn Lai. (2017). “5 Critical Factors to be considered for building a Sustainable Supply Chain”. Retrieved from SIPMM: https://sipmm.edu.sg/the-5-critical-factors-to-be-considered-for-building-a-sustainable-supply-chain, accessed on 30/10/2018.

Patty Rasmussen. (2017.) “Benefits of Using A Vendor-Managed Inventory Program”. Retrieved from https://news.ewmfg.com/blog/benefits-of-using-a-vendor-managed-inventory-program, accessed on 30/10/2018.

Terese Ong. (2018). “5 Important Techniques for Effective Inventory Control”. Retrieved from SIPMM: https://sipmm.edu.sg/five-important-techniques-for-effective-inventory-control, accessed on 30/10/2018.

About the Author: David Wong has substantive work experience in the area of supply chain management, and specifically in the Food Industry. He is a member of the Singapore Institute of Purchasing and Materials Management (SIPMM). David completed the course on Diploma in Procurement and Supply Management (DPSM) on September 2018 at SIPMM Academy.

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