Höganäs offers customers more
With a core competence in metal powder technology, Höganäs is the
world’s largest producer of iron and metal products. Their mission is to
offer metal powder solutions that create new business and profitable
growth for their partners and customers. Headquartered in Höganäs,
Sweden, they have 1600 employees working at 14 locations worldwide.
In order to achieve their goals, Höganäs knows that they must be on the leading edge of supply chain technology. In the competitive automotive industry it is not enough to compete on price. Höganäs must provide service that helps their customers improve the value proposition that they in turn offer to their own customers. They chose a Vendor Managed Inventory (VMI) solution to help them achieve these goals.
According to Richard Molin, Supply Chain Manager at Höganäs: “We have found that the one of the keys to improving our value proposition lies in a transparent supply chain. By raising the information level of our supply chain it allows us to greatly increase supply security and save money for our customers, as well as for ourselves.”
Before implementing VMI, Höganäs was operating without sufficient information when it came to knowing about future customer demand. Richard Molin, says this about the situation: “We knew our customers did not fully trust our supply security, but we lacked the information we needed to judge which were the most critical orders and which were ‘just in case’ orders to increase safety stock. We had to prioritize orders without seeing the true picture about customers’ actual need. This led to a vicious cycle that caused us to develop a high level of finished goods inventory, and caused our customers to submit extra orders and build up high levels of safety stock. We needed a solution to make our production process more efficient and intelligently handle fluctuation in demand.”
After investigating different options, Höganäs realized that the best way to raise the information level of their supply chain was to implement a Vendor Managed Inventory solution towards their customers. This means that instead of sending purchase orders at irregular intervals, Höganäs’ customers supply inventory and forecast data on a regular basis. Höganäs, using that data, replenishes the customer’s inventory based on predefined minimum and maximum levels.
“With a VMI process we see exactly what our customer needs, we produce it and we ship it out. Forecast data lets us plan much more precisely instead of having a high level of security stock for last minute fluctuations in demand.”
Richard Molin, Supply Chain Manager
Benefits of VMI
Before VMI:
Using VMI:
In order to achieve their goals, Höganäs knows that they must be on the leading edge of supply chain technology. In the competitive automotive industry it is not enough to compete on price. Höganäs must provide service that helps their customers improve the value proposition that they in turn offer to their own customers. They chose a Vendor Managed Inventory (VMI) solution to help them achieve these goals.
According to Richard Molin, Supply Chain Manager at Höganäs: “We have found that the one of the keys to improving our value proposition lies in a transparent supply chain. By raising the information level of our supply chain it allows us to greatly increase supply security and save money for our customers, as well as for ourselves.”
Information – The main issue
Before implementing VMI, Höganäs was operating without sufficient information when it came to knowing about future customer demand. Richard Molin, says this about the situation: “We knew our customers did not fully trust our supply security, but we lacked the information we needed to judge which were the most critical orders and which were ‘just in case’ orders to increase safety stock. We had to prioritize orders without seeing the true picture about customers’ actual need. This led to a vicious cycle that caused us to develop a high level of finished goods inventory, and caused our customers to submit extra orders and build up high levels of safety stock. We needed a solution to make our production process more efficient and intelligently handle fluctuation in demand.”
Better planning with VMI
After investigating different options, Höganäs realized that the best way to raise the information level of their supply chain was to implement a Vendor Managed Inventory solution towards their customers. This means that instead of sending purchase orders at irregular intervals, Höganäs’ customers supply inventory and forecast data on a regular basis. Höganäs, using that data, replenishes the customer’s inventory based on predefined minimum and maximum levels.
“With a VMI process we see exactly what our customer needs, we produce it and we ship it out. Forecast data lets us plan much more precisely instead of having a high level of security stock for last minute fluctuations in demand.”
Richard Molin, Supply Chain Manager
Benefits of VMI
Before VMI:
- Sales orders were received with no indication of future demand.
- This created the need for large inventories of safety stock both at their own location and at their customers.
- Production was not optimized due to the need for frequent small panic runs. This wasted money due to lost production time as well as setup and overtime costs.
Using VMI:
- Using VMI, Höganäs receives regular forecast and inventory data from customers. This eliminates last minute “just in case” orders and gives Höganäs visibility into future demand.
- By far the biggest benefit Höganäs receives from the improved level of information is an optimized production. They eliminates/minimizes small panic production runs due to better decisions based on better information. They are able to plan longer production runs and eliminates a great deal of setup and overtime costs.
- Another benefit from better information and planning is the reduction of safety stock, both at Höganäs and their customers. They no longer need to keep 10 days worth of supply on hand in order to handle fluctuations in demand. They know the demand well in advance and can produce the correct amount of supply accordingly. Customer confidence is way up.
- Höganäs’ customer has experienced another benefit as a byproduct of the VMI system – reduced transaction costs. Because Höganäs is now responsible for replenishing inventory, their customer no longer spends resources on creating and following up on purchase orders.