2013 Analysis
The Smith Group
Nick Garo & Holly Swenson
Supply Chain Management
Professor M. Power
February 13, 2012
The Smith Group, a U.S. manufacturer of power and hand tools, is just one of many companies that has benefited from the implementation of a Vendor-Managed Inventory (VMI) system in their supply chain. IN VMI systems, the supplier; or in this case, The Smith Group, has control over managing the inventory levels at their retailers. However, in order to establish a VMI system it is necessary to have advanced technological capabilities. For many of The Smith Group’s existing customers, this does not pose a challenge. Unfortunately, some of the smaller distributors do not have the infrastructure to transmit the necessary data to carry out a successful VMI system. To combat this issue, The Smith Group has implemented a Kanban system with the distributors who are unable to support a VMI relationship.
The Kanban system, developed by Toyota Motor Corporation in the late 1940s, is an inventory management system that uses a pull strategy to signal upstream when and which inventory needs replacement. The Kanban system is related to just-in-time production, meaning that little to no excess inventory is carried, rather, the inventory is manufactured and stocked exactly when it is needed. Prior to advancements in technology, the Kanban system used physical cards on each product that were collected and relayed to the supplier when sold. Once the cards were collected, the supplier knew exactly which products needed to be replenished at each retail location and could adjust their manufacturing and shipments accordingly. This process reduces the need for inventory demand forecasting on the supplier’s end as well as simplifies the inventory ordering process on the retailer’s end.
By implementing this system, The Smith Group is able to better communicate about inventory levels with its smaller retailers, almost on a level that exists
Nick Garo & Holly Swenson
Supply Chain Management
Professor M. Power
February 13, 2012
The Smith Group, a U.S. manufacturer of power and hand tools, is just one of many companies that has benefited from the implementation of a Vendor-Managed Inventory (VMI) system in their supply chain. IN VMI systems, the supplier; or in this case, The Smith Group, has control over managing the inventory levels at their retailers. However, in order to establish a VMI system it is necessary to have advanced technological capabilities. For many of The Smith Group’s existing customers, this does not pose a challenge. Unfortunately, some of the smaller distributors do not have the infrastructure to transmit the necessary data to carry out a successful VMI system. To combat this issue, The Smith Group has implemented a Kanban system with the distributors who are unable to support a VMI relationship.
The Kanban system, developed by Toyota Motor Corporation in the late 1940s, is an inventory management system that uses a pull strategy to signal upstream when and which inventory needs replacement. The Kanban system is related to just-in-time production, meaning that little to no excess inventory is carried, rather, the inventory is manufactured and stocked exactly when it is needed. Prior to advancements in technology, the Kanban system used physical cards on each product that were collected and relayed to the supplier when sold. Once the cards were collected, the supplier knew exactly which products needed to be replenished at each retail location and could adjust their manufacturing and shipments accordingly. This process reduces the need for inventory demand forecasting on the supplier’s end as well as simplifies the inventory ordering process on the retailer’s end.
By implementing this system, The Smith Group is able to better communicate about inventory levels with its smaller retailers, almost on a level that exists