Improving service and cost by adopting vmi

1. Case study – December 2011 Improving service and cost by adopting vmi

2. Implementing VMI is one of Sainsbury’s key priorities for 2012 • Building trusting partnerships is a big part of Sainsbury's supply chain strategy • This means that “sharing information, being clear about what will be shared in an open and honest manner is an essential part of our strategy”(Source: Sainsbury's supply chain grocery supplier conference, September 2011) • Phase I of Sainsbury’s Vendor Managed Inventory initiative was implementing a trial with CCE, and this meant that CCE had to fulfil the following criteria: • SKU count in the mid range • Complex order generation and fulfilment • Complex network • ‘Good’ to ‘Better’ Supplier performance • Proven experience & skill • Strong record of collaboration across the teams Source: IGD Research, Sainsbury’s, 2011

3. Key enablers for implementing VMI This case study will provide you an overview of how Coca Cola Enterprises and Sainsbury’s worked together to build these enablers, and delivered results for their businesses

4. What is vendor managed inventory (VMI)? There are different techniques for managing stock in FMCG supply chains. It can be managed jointly by suppliers and retailers. Efficient supply chains rely on data passing along the chain, and one technique to use that data to increase efficiency is vendor or co-managed inventory. In this model the retailer’s stock levels are managed by the supplier. Source: SAP Source: IGD Supply Chain Analysis, 2011

5. Aims and objectives for the VMI initiative Although the CCE business with Sainsbury's was doing well, the team wanted to “do more, do it better and do it faster to better manage service and cost”. This meant that systems and order management processes had to be fit-for-purpose helped by clear visibility of sales, stocks and service level. Performance versus target Before VMI (January 2011) Supplier Service CCE Depot Service Depot Availability Store Stockholding Source: IGD Research, 2011

6. The two networks Source: IGD Research, 2011

7. Project scope definition and progress • The role of a VMI manager - what you need to think about • Pick a high performer – one who has a track record for delivering results in your business • Ensure he or she has the experience of working in a customer facing role and a good knowledge of the supply chain function • Must-have skills: ability to manage data, engage and communicate well with people, good listener, objective and impartial, ability to see things through and a passion for getting things done • Personality traits essential: self-sufficient, mentally resilient and a self-starter

8. What does a VMI manager’s day look like? Publish shared metrics for the week, month and quarter to CCE and Sainsbury’s Review supply chain development initiatives Non issuing stock Review CCE promotions Add stocks New product development Review availability: depot, supplier, promotional Check forecasting variances Investigate top 20 availability failures Review overall depot stock Investigate all credits – projected, depot, consecutive SKU level availability investigation / sub cat Today’s depot stocks and sales Check range Keep an eye on today’s progress Track longer term issues and performance Previous day’s performance

9. The VMI manager plays a key role in improving visibility of demand

10. Practices that delivered some early wins in the CCE trial: some examples • Supplier service level • Weekly and daily tracking of performance • Root cause analysis of supply shortages • Focus on EDI non-transmission and haulier performance • Depot service level • Weekly and daily tracking of performance • Focus on future issues using projected credits on a daily basis • Availability • Maintain strong performance during ‘plinth change-over’ • Support by amending loads and creating loads where necessary • Track on-shelf availability by format • Stockholding • Identify causes for stock build, e.g. promo packs, ‘hands-off’ EDI trial • Use of ‘overstocks tracker’ by SKU, to focus on ideal stocks • Continued focus on weekly updates to colleagues in both businesses alongside on-going tracking of key stores identified through joint planning process • Ensure there is continuity in business planning by training additional colleagues where necessary • Invest in continued improvement in the VMI project work, e.g. lead time changes, haulier performance, etc. Others

11. Challenges must be overcome A VMI initiative means that the supplier needs to invest resource in the project. How did CCE manage this challenge? Considering the benefits of improved supply chain visibility from having a VMI manager for Sainsbury’s and recognising the implications of resource requirement at Sainsbury’s head office (Holborn), CCE worked together to plan this and build the business case in a more robust way. As a supplier committing to implement VMI, there was a need for visibility and transparency in transaction data. How did CCE ensure this was an integral part of the process? CCE signed a confidentiality agreement with Sainsbury’s and ensured senior stakeholder buy-in for the project. This helped in planning, managing and ensuring ownership for a successful pilot. Understanding complex retailer systems and processes in a new environment can be daunting. How did CCE overcome this barrier? Recruiting a high performer, ensuring that the training is planned at least six months ahead and tying it in with Sainsbury’s quarterly programme of supplier courses helped, as did picking a candidate with prior experience in complex ordering systems.

12. Critical success factors • Senior management commitment and sponsorship • Belief that a VMI initiative requires investment, both from the retailer and the supplier • Defining the right scope; agreeing the metrics, reporting and regular reviews are absolutely essential • Using the best people and giving them authority to operate alongside equipping them with training not just before, but during and after • Finally, using the collective experience to make bold decisions on trying new things, is just as important “The success of VMI has been built on trust. The trust between both our businesses has led to us moving the dial in terms of our partnership and also improving our joint performance metrics. We both invested in the VMI programme and now we are both winning“ Andrew Atherton Senior Supply Manager, Sainsbury’s “Andy and I were committed to finding ways to improve our service and cost together. VMI has been successful because we had a great plan, signed off at the top with great training and support from the JS team“ Alun Ferguson Senior Manager Customer Logistics, CCE

13. Results Performance versus target Before VMI (January 2011) Performance versus previous After VMI (October 2011) +0.94% Supplier Service +0.50% Depot Service -0.08% Availability +0.25wk Stockholding Following the trial, the teams at CCE and Sainsbury’s expect to review the scope, with an aim to extend it to store replenishment systems as well as the volumes pertaining to the convenience store format. The performance standards for 2012 will be ‘raised’ in order to accelerate the definition of ‘ideal’ within both businesses. Source: IGD Research, CCE, 2011

14. For further insight • IGD would like to acknowledge Sainsbury’s and Coca-Cola Enterprises in the development of this case study • For more case studies on how retailers and suppliers are implementing improvement initiatives, please visit the case study section on Supply Chain Analysis • For insight on Sainsbury’s logistics strategy and related insight, please click here • Subscribers can: • Gain further insight on supply chain strategy and planning, by reading our in-depth reports here • For a detailed understanding of leading retailers’ supply chain strategies, click here • Read IGD’s best practice case studies on supply chain, click here • For any other information, please email Nick Downing at nick.downing@igd.com or call him on +44 (0)7730822274