What is VMI?

In short, VMI is the process where the supplier generates the order and manages the inventory level for the customer. Prior to shipment, the supplier sends a delivery notice to the customer. VMI normally includes a combination of hardware, software and the input of people. The system is not tied to specific communication protocol and companies can use EDI (e.g. Wal-mart) ,XML, FTP or any other reliable communications methods.  Emerging methods, such as GSM mobile networks, are significantly reducing hardware cost (see Tanzania’s “SMS for Life” example).

VMI is a collaborative process where suppliers and customers share data and jointly agree on forecasts for each stock keeping unit (SKU). The replenishment of stock is automated and software is used to analyze and adjust changing demand patterns, goals and constraints. However, in emerging markets working with SMEs, it is unlikely that such an automated system is required and human intervention will likely suffice. Once the customer receives the product, the retailer handles payment through their account payable systems. Mobile money such as M-PESA also holds great potential as a payment system.

What are some of the challenges?

Technology - Hardware and software cost are major stumbling blocks when servicing SMEs . Current cost effective mobile technology is reducing costs, as demonstrated by m-health models, but cost remains a stumbling block for many SMEs. Poor system integration can also have a severe negative impact on the system.

Product returns – With SMEs there is the possibility that the system will be crippled by high product returns as cash flow and priorities shift.  Agreeing on inventory guidelines is just the first step of implementing the system. Making the model work can be more challenging.

Buy-in – Getting buy-in from SMEs can be a challenging undertaking and VMI can be viewed with suspicion to force them to buy certain products and SKUs.

Sales force resistance – The sales force makes money by selling product and this can be viewed as an attempted to reduce staff and cut cost.

Production challenges – Where products or SKUs are in short supply, the system can quickly break down and suffer from a credibility loss.

What are the advantages of VMI?

In developed markets the advantages of VMI for upstream (suppliers) and downstream members (customers or retailers) are well documented. The same holds true in emerging markets.  VMI holds some major cost savings benefits for both the supplier and customer. VMI can eliminate the need of a sales person to call on the outlets and reduce cost.

Customers are not always available and fulfillment costs are high due to low drop sizes. By improving visibility suppliers can provide timely and accurate deliveries and, in the process, provide better customer service. VMI can also improve customer retention and reduce stock outs, critical issues for any supplier in emerging markets where demand fluctuates based on cash flow. By closely evaluating the demand, suppliers will also tap into local market insight and get a better understanding of demand patterns.

Partnership and value added services

Building strong partnerships, either through non-profit organizations or Self Help Groups (SHGs), could play a crucial role in identifying retailers and making the model more scalable. Non-profit organizations can also play an important role in capability deployment and organizing micro-credit groups.

Partnering with other organizations that provide value added services such as micro-credit, mobile money and insurance, can share costs and risk with other partners.  VMI technology can also be used to sell other services such as mobile airtime and electricity vouchers. However, companies need to pilot VMI to ensure obstacles are overcome prior to roll-out.  With the mobile revolution in full swing, technology such as VMI, holds great potential for SMEs in emerging markets.

I recently spoke to Rasmus Buskov, Managing Director at Penta Business Solutions, a seasoned professional in the Enterprise Resource Planning (ERP) industry in Vietnam.

TN:  What is Penta Business Solutions?

RB:  We are a team of experienced business consultants focused on providing affordable yet sophisticated open source ERP solutions, namely Openbravo, to businesses in Vietnam. One of our focus industries is medium size manufacturers, for example the textile industry.

TN: What are the advantages of open source ERP?

RB:  In short, open source gives you access to the source code and you are free to use, change or distribute the software. With open source you are also not tied to a specific vendor and if you are not satisfied with the service you receive, you can go to a third party. Proprietary software is not that flexible and it does not allow you the same freedom. The open source community also attracts a large group of software developers that are always searching for challenges and looking to overcome technical difficulties. With open source you are part of a much bigger community, because you are not tied to restrictive licensing fees and there are no hidden costs. With proprietary software, normally half the cost of the ERP system is the license fee and the other half is the implementation cost.

TN: What advice would you give to a company when implementing an ERP system?

RB: It is important not to try to do too much. Manage scope creep and focus first on the basics when implementing an ERP system. Extreme customization is likely to land in trouble.  It is also important to have a serious look at your business processes. For example, the basics would include knowing your inventory levels and having a clear understanding of the value and cost associated with them. It is also important to establish clear terms with your vendor and assign detailed responsibility. A successful implementation of an ERP system is normally also based on a good partnership with you service provider.

TN: What advice would you give companies when training staff with regards to ERP?
RB: I would focus on one-on-one training or small groups. From experience I can tell you, putting a large group of people in a training room just does not work.

TN: How has the ERP market changed the last 5 years?

RB: ERP has moved to the forefront and a lot of companies have implemented ERP or are seriously looking at ERP solutions. WTO entry has a lot to do with that, as local companies look to compete with foreign entries.

Mobile phone networks have proven to be a vital piece of technology for Africa. The technology is playing an important part in bridging the infrastructure divide and assisting entrepreneurs and businesses to improve efficiency. The mobile revolution is still in its infancy and organizations are slowly adopting new tools and technology to conduct business.  The not-for-profit sector has been on the forefront of adopting and piloting a number of projects and there are some interesting learnings for the business world.

Communication for the mobile age

One of the major challenges for any operation is keeping customers informed. When conducting customer service surveys in Africa, outlets often complain about the lack of communication about product offerings and promotions.  Many customers are also frustrated about a lack of timely information.  As one retailer put it to me in Guinea, “by the time we get to understand the mechanics of the promotion, the promotion has ended.”  Most managers and supervisors are using SMS extensively to communicate with customers and increasingly companies are adopting it as an enterprise application strategy. FrontlineSMS created a text messaging system for not-for-profit organizations to address poor communication, which is seen as a major barrier for many organizations. The system leverages tools already available to most organizations, namely computers and mobile phones. The same system is being adopted by companies. For example, companies can use the system to send out mass SMS messages. Companies can categorize their databases and tailor messages according to trade channels and profiles.  Companies can also use the system to collaborate more effectively with trade partners and share information.

Mobile learning

In Africa, as in many parts of the world, people are spending more time reading text on mobile phones and mobile learning has seen some interesting developments. Projects such as the Imfundo Yami/Imfundo Yethu in South Africa is currently piloting a project to teach kids mathematics on the mobile phone.  The Shuttleworth Foundation in South Africa has also taken the initiative with the M4lit (Mobiles for literacy) project to get children to read. In Africa, where corporate training budgets are often overstretched, mlearning can be viable blended learning option.

Mobile Search

With limited cash flow, many retailers run out of stock on a regular basis and delivery frequency does not always satisfy demand.  With low drop sizes (low purchases) increasing delivery frequency is not always a viable option. Outlets are sometimes unaware where to purchase stock when they run out. Mobile search, such as applied by Google’s Application Laboratory  (AppLab) in partnership with the Grameen Foundation, models interesting possibilities for business.  AppLab builds on the success of another earlier project, Village Phone, in which local entrepreneurs rent cell phone use to villagers. AppLab includes Farmer’s Friend, a searchable database with agricultural advice and weather forecasts, Clinic Finder, to locate nearby health clinics, and Google Trader, which matches buyers and sellers of agricultural produce, commodities and other products. Companies can adopt mobile search to provide important information regarding location and product offering to consumers. It can also be used to assist shop owners in locating the nearest supply point.  Users can text a query to a short code and the service will text back the result.

Mapping stock-outs

Most companies in Africa will tell you that visibility in the supply chain is one of the biggest challenges they face. With a lack of IT infrastructure it is difficult to keep track of stock levels and sales data; real time data is just a dream for most.  However, organizations are increasingly starting to use mobile phones for data collection. Stopstockouts.org currently uses the Ushahidi website mashup, online mapping technology,  to track stock-outs of medical supplies with text messages in Kenya, Malawi, Uganda and Zambia, all in near real time. Ushahidi  was initially developed to map reports of violence in Kenya after the post-election fallout in 2008. Text messages are connected with mashups, and create a picture of medical out of stocks.  Businesses can use the same technology to track sales and stock levels and identify problem areas and regions.  Online mapping can also be used to collect outlet base information and create route maps for distributors and salesmen.

SMS for counterfeit

Most African consumers can testify that purchasing medication can be a risky undertaking.  International Medical Products Anti-Counterfeiting Taskforce (IMPACT) estimates counterfeits comprise around 1% of sales in developed countries and more than 10% in developing countries. However, in parts of Africa, more that 30% of the medicines on sale can be counterfeit.  MPedigree, a non-profit based in Ghana fights counterfeiting with SMS technology. Consumers can SMS a scratch off panel code to determine if medicine is counterfeit. The same technology can also be used by companies in the textile and beverage sectors, where counterfeit is rampant and a major barrier for market entry.

Banking for the unbanked

With very low banking penetration in Africa, mobile banking provides great opportunities for organizations.  Many distributors run out of stock because, as one distributor explained in Zambia, “to go to the bank is half a day out of my trading day. But no cash, no delivery”. Mobile banking (M-Banking) schemes such as M-PESA in Kenya and Wizzit in South Africa are receiving increased attention. As most mobile phone users make use of prepaid cards, prepaid calling credit has emerged as a viable mobile paying system in some countries, notably Kenya. Customers can use M-Banking to pay bills and transfer money. M-PESA is also being used as a savings account even though the scheme does not pay interest. Olga Morawszynski’s excellent research on M-Pesa found that it saves people time that they would otherwise spend traveling between their home and city to deliver money.  M-banking holds real potential for organizations in Africa where cash flow and a reliable banking infrastructure remains a constant headache.

Mobile phones have had an enormous impact on peoples’ lives in Africa and can be counted an unparalleled success when compared to any other technology. As a cheap available technology, mobile technology presents a great opportunity and companies should seize the opportunity.

What is the Xbox live? It is an online game with a vast online community. You need a Xbox console connected to the internet.

How much visibility is there in the game? Players (companies) around the globe are visible to all on the network and you and see who is online (or what is in stock for what price). You can select payers as “friends” (supply chain partners) and also segment players in different categories (work groups). Players’ games scores (actions,projects and KPIs) and profiles (company profiles, product and services) are available to all on the network. You can also invite players or groups (companies or individuals) to join various games (projects).

Can you communicate with players and groups? Communication is real time via chat or phone. Players (companies or individuals) can exchange ideas (or collaborate on projects) and discuss the game (projects).

Vietnamese companies are increasingly looking for ways to make their operations more efficient and effective. Research has found that a successful Enterprise Resource Planning (ERP) system has the ability to reduce inventory by as much as 45 percent.  Until recently, ERP was out of reach for many Vietnamese companies as the investment was just too large for small and medium sized enterprises (SMEs) to justify. Many local companies did not consider ERP as a viable option. Today, however, SMEs are looking at ERP in a different light, as more affordable options become available.

Vietnam’s ERP market is still relatively small, but it is a growing market that has changed dramatically the last five years. “In Vietnam the local market is growing fast as companies recognize the benefits of ERP,” said Nguyen Chi Duc, General Manager of Exact Software Vietnam, a specialized ERP software provider. In Vietnam, Nguyen added, recent entry into the World Trade Organization (WTO) has put increased pressure on local organizations preparing to compete against a feared international onslaught. Nguyen said that companies in Vietnam are no different from their counterparts in the US and Europe. They are searching for vendors that can provide the required functionality and service quality that companies expect.  Finding relevant data to determine the size of the market can be challenging. Most companies continue to work on rough estimates to determine the size of the market and individual market segments.

ERP misconceptions

The Vietnamese economy has progressed a lot over the last five years. However supply chain management is still a relatively new discipline. “There is a misunderstanding of what supply chain is,” explained Long Chandara, Country Manager of Tectura, an ERP service provider with a Country Office in Vietnam. Chandara highlighted the need for vendors to manage their customers’ expectations of what ERP can and cannot deliver. For example, a Vietnamese company might be interested in a payroll package and expect ERP to provide the same functionally and benefits as best of breed software.  This represents a misunderstanding of ERP. ERP is not a magic bullet to replace all best of breed software in the organization.  Another challenge can be getting senior management on board.  Nguyen succinctly summarized, “Some senior management don’t see the benefits of ERP”.  For ERP to get senior management buy-in, time needs to be invested in developing a clear understanding of ERP and its potential benefits for SMEs.

ERP readiness

Many Vietnamese organizations are increasingly looking at ERP implementation to drive organizational change. However, in Vietnam, ERP readiness is a critical point to consider for any project team prior to implementation. “Companies in Vietnam don’t always have an ERP culture”, said Chandara.  For example, simplifying and standardizing business processes is an important part of any ERP implementation. However, many companies in Vietnam lack the required business processes to do this. Similarly, evaluating business processes is critically important. “There is a [misplaced] belief that automating existing business processes will result in optimized business processes,” said Abesolom Abby Fidel, an independent SAP consultant based in Vietnam. Vietnamese companies need to invest more time in evaluating best practices than is currently done.  That said, with limited data available, identifying best practices can be a challenging undertaking. Vietnamese companies need to institutionalize performance metrics and be clear how performance will be measured. Something that doesn’t always take place.

Limited collaboration

Collaborating and sharing information among supply chain partners is not yet a common business practice in Vietnam. “Companies have a problem with sharing information,” Chandara said.  Nguyen echoed this view,” There is limited supply chain collaboration in Vietnam.”  Poor interdepartmental collaboration and conflict can severely affect the success of ERP implementation. Poor collaborating in the supply chain is leading to poor visibility along the supply chain. Business relationships in Vietnam are sometimes less trustful than one finds in more developed markets, which limits the amount of data companies are willing to share. On a more positive note, Nguyen noted that with the current economic crisis and WTO entry he is seeing more companies collaborating and sharing information.

Implementation challenges

Companies in Vietnam are facing a number of challenges when implementing ERP systems. One of the big errors companies make is to rush implementation schedules.  “ERP implementation in Vietnam takes much longer,” said Nguyen. Chandara added that many companies underestimate the implementation timelines and that project management can be problematic. Streamlining business processes can take a long time in any operation. According to Fidel, Vietnamese companies sometimes lack patience and flexibility in dealing with the required business engineering.

For ERP implementation to succeed companies need to change behaviour in the organization and remember there is no single person responsible for operations. Companies need to understand the capability in their organizations and what they need to do to develop capability. In Vietnam, finding and keeping good people on a project can be challenging undertaking. “Companies don’t always have the human resources for ERP implementation,” Nguyen explained. Especially outside of the major commercial centers of Ho Chi Minh City and Hanoi, finding the right capability can be problematic. Bringing in overseas consultants also presents challenges. “Overseas consultants don’t always understand business practices in Vietnam”, said Nguyen.  Language skills can also be an additional barrier. Developing local talent in the organization is an ongoing process. “Companies need to cultivate and motivate employees,” advised Fidel.  Nguyen added that, to some extent, human resource departments are benefiting from the slowdown in the economy as employees are less likely to jump ship.

Value and return of investment

Despite lower costs now, Vietnamese companies need to have a clear understanding of the investment cost and return on investment. “Companies sometimes underestimate the total cost of ERP implementation,” Chandara said.  According to Nguyen, some companies view the implementation of a well known ERP brand as increasing the value of the company.

The Vietnamese business landscape has changed dramatically the last couple of years and companies are increasingly recognising the benefits of ERP. However, the business environment in Vietnam is very different from more established ERP markets in the US and Europe. Vietnamese companies need to conduct a detailed risk assessment and not base their assessments only on industry research. For any company, ERP is a big investment and implementation and building local capability should not be taken lightly. Especially in these uncertain economic times.

Centralization of control. Centralization allows companies to make better use of shipment consolidation and pooling opportunities. Companies can now share shipping schedules across departments and business units. This reduces costs and drives efficiency across the whole supply chain.

Standardization of processes. By breaking down each process into its component parts, companies can identify opportunities including unnecessary layers or steps. Once processes are understood, companies can start highlighting best practices as well as bad processes.

Automated processes. In the past, companies relied on manual processes to track and monitor shipments. Processes were not synchronized and that created bottlenecks in the system. Automation allows today’s supply managers to manage more complex processes. Automated processes allow organizations to reduce cycle time and resources required.

Greater collaboration. With increased collaboration, supply chain partners are identifying opportunities not just for their business units, but opportunities that affect the entire supply chain.

The lack of a project approach without clear goals and timelines is likely to fail in any organization. Many businesses think that line managers will make the time to implement the required supply chain initiatives. The pressure of daily operational activities makes this an unlikely option.

Bureaucratic processes can lead to scope creep and have a severe negative impact on the project. Senior executive can play an important role in removing barriers and red tape and insuring a smooth transition.

Overlapping IT systems or future software implementation for resource planning systems (ERP), can slow down the implementation systems. It is important for the project team to have a clear understanding of the current and future IT infrastructure, and where overlap might occur. In some organizations, a combination of computer generated information and manually recorded information can create further confusion.

Organizational culture and change management are also two aspects that will impact the organization. Creating the right culture for change needs to commence prior to project team implementation.

Senior Executive untrained in the specific capabilities and requirements of supply chain often find it difficult to make operational decisions. Training requirements should not only focus on line managers,. They should be extended to senior executives also. Executive training programs and workshops can provide an important support structure for senior executives.

Supply Chain requirements are frequently designed based on production and raw material constraints. Process mapping and design must take into consideration customer needs and economic factors. The supply chain design should not be constrained by production and supply inefficiencies.

Prior to system development and roll-out, a model design is essential. The model should include current and future supply chain requirements. Furthermore, the decision making process needs to be clearly mapped out, with a clear process flow.

The importance of best practices is sometimes underestimated. Having clear best practices, within the organization, but also within the industry, will assist in the creation of a roadmap for supply chain effectiveness.

The decision making process must clearly mapped out and include all key stakeholders. Often, critical line managers are excluded from the process, and are not given the opportunity to design their own process goals.

Regular feedback meetings must be scheduled with all key stakeholders. Feedback meetings often provide the opportunity for senior executives to track progress and make necessary changes, if needed.

The right people must be on board from the start of the project. Often, project teams lack critical human resources and skills as key individuals are assigned to operational tasks and unable to devote their full attention to their respective project team.

The project team will benefits from using proven implementation methodology. The lack of a clear methodology will severely affect the project roll-out.

Conclusion

Buy-in and support is probably the best way to describe the successful implementation of a supply chain system. While the long term impact and benefits of having a supply chain are undisputed, the project implementation process should not be taken too lightly. Ensuring that all key stakeholders are onboard is one of the best ways to get there.