Bus

Vendor Managed Inventory: Benefits of a Transit Supply Chain Network Realized

Posted on June 15, 2012 by Naeem Farooqi

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The consortium received full transparency into the price Neopart pays for each part plus the markup and receives a lowest price guarantee that is monitored on an ongoing basis.
The consortium received full transparency into the price Neopart pays for each part plus the markup and receives a lowest price guarantee that is monitored on an ongoing basis.

First delivery
The first delivery under the VMI system rolled out to Ontario-based Oakville Transit in February 2012. The delivery was a small skid of filters, wipers and other fast-moving items. The purchasing process had fundamentally changed with buyers/stockkeepers redirecting all requests for parts to one company without having to worry if they were getting the best price. This feature was built into the contract, whereby the consortium received full transparency into the price Neopart pays for each part plus the markup and receives a lowest price guarantee that is monitored on an ongoing basis.

A few weeks later, Hamilton Street Railway and the London Transit Commission went live with a phased integration approach. This was devised to allow Neopart to better manage demand and volumes. The first weeks saw large quantity order requests driven by the traditional min/max levels. As transit system stockkeepers are becoming more familiar with the process and the quantities, lower on-hand quantity levels are beginning to emerge while keeping up with availability requirements.

The 100-day post award period for a project of this size and complexity has many challenges. Metrolinx’s VMI project was no different with the emergence of issues regarding fill rate, back orders and brand preference. Each problem was addressed with procedures jointly established by the consortium and Neopart. The eight fleet managers stayed the course and continue to support the project seeing major parts price savings from day one.  

Post-Launch Benefits
As the project continued to roll out with greater SKU integration, one major unforeseen benefit has been the interest of parts manufacturers to directly supply the consortium. This helped remove many layers of materials supply chain, resulting in reduced purchasing costs. The primary appeal for manufacturers is the dedicated volumes and long-term predictability for manufacturing purposes. In many Fortune 500 companies, these supply chain practices are called IPFR (Integrated Planning Forecasting and Replenishment), which has been achievable with the two-way knowledge exchange between the end-users and manufacturers with the goal of bringing down parts cost. As well, with the average cost of materials management being 18 cents on the dollar, it will drop drastically as this project continues to rollout and costs are reduced throughout the supply chain from buying to billing.

Working with a partner with similar goals and interests has been a rewarding experience for the consortium with parts price savings averaging around 15% to date. The cross reference developed in conjunction with Neopart for transit parts SKUs is one of the largest in the industry, with the benefit of providing the true value of finding the core part sourcing.

The consortium has yet to realize the many other expected benefits of the VMI system. However, it is positive that the continued process of sourcing core and the integration of other Ontario transit systems will continue to reduce parts cost and stock-out risks.

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