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Multi-sourcing with VRO

Sending 2 Pick-Up Order to 2 different suppliers for the same reference seems a real challenge: how to calculate the loop? how to order when you are counting the same part?

This chapter explains a practical approach to manage VRO with double sourcing and then, extends the idea to VRO for multi-sourcing.

Suppliers analysis

To set-up VRO for double sourcing, you need to analyse the situation of your 2 suppliers. The main criteria to be taken in account is the transportation transit time and the delivery frequency.

If you have a significant difference of transit time between the 2 suppliers, it is better to manage the farest supplier with VRO using a fixed Pick-Up quantity. The second one will be managed with a classical VRO.

If transportation transit time and delivery frequency are quite similar, the less flexible supplier has to be managed with VRO using a fixed Pick-Up quantity.

VRO with fixed Pick-Up quantity

VRO with fixed quantity means using the MRP results (with quota) and transfer the quantity on the Pick-Up Order. No loop calculation is needed but you have to:

  • set-up in your MRP parameters a firm period equal to the transit time;
  • transfer the quantities firmed from the MRP calculation into the Pick-Up Orders to be send to the supplier.

Why using a Pick-Up Order? To get the promise in order to be able to detect a shortage before the departure of the material from the supplier and have one standard process of procurement with all your suppliers.

The other supplier has to be under classical VRO but:

  • The loop has to be calculated based on the total demand (without applying the quota).
  • The inventory counting has to cover the total quantity of the reference whatever the supplier origin.

With this method, a discrepancies not solved (no possibility to get the material on time) from the farest supplier is automatically ordered by the classical VRO to the other supplier.

It means that the procurement quota respect is respected only for the initial ordering. If a supplier is not able to deliver, the quantity in discrepancy is ordered to the other.

Your Purchasing organization needs to understand how it works.

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