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The SSM shared supply management, is a way of working in which the suppliers and the customer deal with the delivery management together.

Introduction

The SSM, shared supply management, is a way of working in which both the supplier and the customer deal with the management of the deliveries directly to the customer or for a distribution platform. In this system, the customer decides to partially or totally leave the replenishments to his supplier. This logic of operation is the ultimate step towards the drawn stream.

the principle: In this system, the products are in the Shape of a SKU (Stock keeping Unit) which is a combination of a product reference and a logistic location. With direct access to the customer’s sales and inventory data, the supplier can manage the supplies and its production. The flows are drawn by the actual consumption (output of the customer’s warehouse or sale to the final customer).

This system is fed by data transmitted automatically between the different partners. To ensure reliability and responsiveness, EDI (Electronic Data Interchange) systems are the most appropriate and most commonly used means.

Traditional system

SSM system

SSM Advantage

Disadvantage of the SSM

Promotes cooperation and collaborative work with all the players in the value chain.

Increases the administrative costs of the suppliers on the other hand the increase of its responsibility.

Simplifies forecasting and planning of production through knowledge of actual consumptions.

Complex to implement when there are numerous price changes: promotions, seasons… because these strategies require increases in stocks and therefore go against the SSM system.

Eradication of the phenomenon of Bullwip as well as the effects of Burbidge and Houlihan.

Requires the customer to communicate its sales data to suppliers. Data considered sensitive.

Drastic reduction of the levels of stocks in all the players and therefore the overall costs of all.

In the short term, as roles and responsibilities are altered, the supply chain can be subject to variability.

Improves the service rate to generate more customer satisfaction and thus more sales: it is a virtuous loop.

The real benefit for the supplier will only be seen from a certain level of order.

Historical

At the end of the years 80, the beginning of the years 90, the distribution sector faced brutal variations in consumption, generating numerous malfunctions and stock failures. The distributors then decided to increase the stock levels.

It is at this same time that it is a real deployment and the means of communication are simplified.

In this context, the shared management of supplies appears, which was originally intended to improve the availability of linear products while reducing inventory and supply costs.

The first example of SSM is that between the world’s leading Walmart and Procter & Gamble1. At the time forerunner in the introduction of new computer tools, his supplier Procter & Gamble offered him to take care of supplies himself. They developed software, which was later purchased by IBM, which he then named CRP for Continuous Replenishment Program. Highly deployed in this sector, now many examples in other sectors show the gains of such an approach. For example, L’Oréal Germany has been able to reduce its stock levels at its distributors by 50% without affecting availability2. Heineken Italy was able to reach a service rate of 99% by having the details of actual sales3.

The three forms of SSM

The VMI

The VMI, Vendor managed inventory, “piloting stocks through consumption”, is the SSM mode where the customer totally yields supplies to suppliers. The customer is solely responsible for the sale of the products, the supplier having the role of ensuring that the customer can sell wisely without a shortage of stock. It also decides on deadlines and quantities of deliveries based on the sales data provided and the prior agreements.

The CMI

The CMI, Co-Managed inventory, “Collaborative inventory Management“, is a less extreme Shape of VMI. Depending on the agreements, the supplier proposes a replenishment, but it is only after the agreement of the customer that he will be able to deliver.

This mode of operation is sometimes called JMI for jointly managed Inventory.

The GMA

The principle of the GMA (shared management of supply), also called GPA Multipick or even JRP (Joint Replenishment Problem), is to entrust to a group of suppliers the management of replenishment in place of the central warehouses of Distributors. It is therefore a technique for integrating the principles of cross-docking and Milkrun.

The objective of the SSM Multipick is to create a common transport flow between the suppliers on the one hand and the customers/distributors on the other hand. All orders are processed and calculated via the same shared computer system.

Comparison of 3 models

We propose below the synthesis of a study on 3 potential models of Supply Chain:

 

Traditional model

 
 

SSM (VMI or CMI)

 
 

SSM Multipick

 

It should be noted that regardless of the model, the variability in demand is not a significant factor.

Studies4.5 conclude that the SSM/GMA model is superior to the traditional model:

The table shows a significant difference in performance between a traditional system and the SSM and GMA systems. This on the 3 main criteria of judgement of a value chain that are:

  • the stock cover: The number of days of consumption to which the stock level can cope.
  • The rate of service: Percentage of order delivered in time.
  • the rate of use of transport: the rate of filling of trucks.

Step 1-Define the products

The first step is to choose the products for which we will implement it. This choice will depend on 3 criteria:

  • We will prioritize the products for which we have a high consumption. In view of the overhead of the administrative costs for the suppliers, it will be all the more to facilitate to integrate them that the volume is important. And on the other hand, we will see that all the more the results in terms of reducing the level of stocks.
  • A certain level of confidence is necessary with the supplier. We will therefore choose a supplier with whom we have good relations and which is open to the implementation of the SSM.
  • In view of the fact that we will have to exchange sensitive data, the supplier in question must be subject to confidentiality but as far as possible, not being in a position to be able to use it (work with competition…).

Step 2-Establish the cooperation contract

The cooperation contract will depend on the type of SSM we implement. Depending on the three types we have defined above, the contract will not be the same. The contract shall include the following elements:

  • The confidentiality
  • Product families
  • Purchase prices
  • The rules for calculating stock levels in the standard case
  • The rules for calculating stock levels in the case of promotion… where stock levels will therefore need to be more consistent
  • Finally, if necessary (product at risk, very large cost in case of rupture…) The setting up of a consignment stock
  • Operation: The contract must of course define whether we are in a system of GMA, VMI or CMI.
  • In the case of a GMA, the contract must provide for all the elements specific to the setting up of a milkrun or a cross-dock.

Step 3-Set up the communication system

Reliability and responsiveness in the communication system are the key to the success of such a project. IT departments in different companies have to work hand in hand to put in place complex systems.

There are several hundred software available on the market. The choice will be made with regard to the features, our industry and the cost.

Step 4-Measuring performance

Once set up, such a system must be followed to ensure its proper functioning and that all players in the chain gain and participate in the proper functioning. We will analyze the system according to four criteria: supplier stock levels, service rate, stock levels in store and finally the level of filling of the trucks.

Usually a balance sheet is completed each month and shared. Common objectives and expectations are then validated and set for the next deadlines.

Step 5-Improve the system

At this point the system is implemented and a regular review is planned and held. We still have to put in place a system of continuous improvement, allowing us to pursue the objective of reducing stocks, logistical costs and better managing promotions.

Source

1 – Y. Pimor, M. Fender (2008)-Logistics

2 – SAP (2004) – MySap Supply Chain Management at L’Oréal Germany

3 – SAP (2004) – Heineken Italia, a brewing giant builds its model of the customer model with MYSAP customer relationship Management

4 – M. Waller, M. E. Johnson (1999) – Vendor managed inventory in the retail supply chain

5 – R. Giso (2008) – GPA and GPA shared in large distribution

K. Wright (2002) – Six steps to a successful VMI system

S. Frahm (2003)-VMI: Three steps in making it work

R. Kamalapur, D. Lyth, A. Houshyar (2013) – Benefits of CCRF and VMI Collaboration Strategies: A Simulation Study

A. Saipe, J. Geiger (1996) – Global Brief on vendor Managed inventory

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