Reducing VRO discrepancies
Why do you have supplier promise discrepancies?
- your forecast is not accurate: quantities forecasted are lower than quantities ordered;
- despite accurate forecasts, your supplier is not able to provide quantities ordered on time.
If it is the first reason, the work is on your side:
- do you have a Demand Management process? Do you analyse the customer demand and arbitrate it before using it in your planning processes (MPS, S&OP)?
- do you have a Master Production Schedule process (MPS)?
- do you have a Sales and Operation Plan process (S&OP)?
- is your actual production consistent with the production schedule defined through your MPS process?
VRO is not going to solve scheduling issues or lack of production planning and control management: these points have to be taken as a priority to be solved.
If it is the second reason, you have to analyse in detail how the supplier is able to recover the discrepancy:
- are discrepancies happen daily or are they not really frequent?
- when it is not able to deliver on time (discrepancy), is it able to change priorities in order to recover within the preparation time? the lead time? or does it impact your production schedule?
You have also to analyse how your supplier is working:
- is your supplier has a scheduling process?
- does it use your forecasts to order raw material? to schedule production? to size its finished good inventory?
- is it using the Pick-Up Order to produce?
You need to get an answer to all these questions in order to see if it is just a question of:
- the reliability of its process (machine shutdown, quality issues);
- its organization;
- the time between the order and the promise;
- the time between promise and preparation;
- its production strategy (production based on Pick-Up orders versus produce to stock);
If its process is not at all reliable, request to your supplier to keep a safety stock or to change its production strategy to build to stock. Otherwise if you have some "accidents" you can increase the time between the order and the promise (generally if your supplier has organization issues in its production control or during its inventory availability check) or between the promise and the shipment (if your supplier has a problem of production reliability).
Be carefull, more your increase these times, less your VRO will be reactive to a demand change.
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