Transcript Supply Chain Management

Vendor Managed Inventory
(VMI)
VMI is essentially an integrated approach
whereby the inventory at the
distributor/retailer (downstream) is monitored
and managed by the manufacturer/vendor (upstream)
Customer
A
Vendor
Customer
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Customer
C
VMI underlying principal
By pushing the decision making responsibility further up
the supply chain, the manufacturer/vendor will be in a better
position to support the objectives of the entire integrated
supply chain resulting in sustainable competitive advantage
Choose the correct answer:
1. Optimizes supply chain performance
2. Supplier has access to customer’s inventory data
3. Supplier is responsible for maintaining the inventory level
required by the customer
4. The process is to resupply inventory by the vendor via
scheduled reviews
5. All of the above
Questions for Selecting VMI
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What are your intentions?
What are the critical materials?
Which items/commodities have attributed to the greatest
delays?
Typical Benefits to Manufacturers
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Lower inventory investments (raw and finished)
Better scheduling and planning
Better market information
Good relationship with customer
Visibility via information sharing
Typical Benefits to Retailers
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Fewer stock-out with higher inventory turnover
Better market information
Less inventory in channels (transfer costs)
Lower administrative replenishment costs
Greater customer satisfaction
Reduce cycle time
VMI success factors
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Top management commitment
Focus on effort
Trust and partnership between supply chain stakeholders
Highly effective computer/information systems (EDI, Bar
coding, Scanning)
Competent manufacturers and the ability to forecast
Willing stakeholders partners and patience
Electronic Data Interchange
(EDI)
EDI is
Computer to computer exchange of business
transaction in a standard format
EDI Benefits
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Quick access to information
Reduced labor and material costs associated with handling
paper-based business transaction
Better communication
Increases productivity
Improved tracing and expediting
Improved billing
Better customer service
Ownership of inventory in VMI
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Initially, ownership transferred to retailer upon receipt of
goods
Now, VMI is based on consignment relationship in which
manufacturer owns goods until sold
Retailer benefit: lower inventory cost
Manufacturers benefits: better control
Supply chain benefit: system-wide cost reduction
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Requirements for Effective VMI
Advanced information systems
Top management commitment
Mutual trust
◦ Information sharing
◦ Management of the entire supply chain
◦ Initial loss of revenues
Important VMI Issues
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Inventory ownership:
◦ Who owns inventory
◦ In case of Supplier owns the goods until they are sold
 Why would a firm do this?
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Confidentiality
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Communication and cooperation
◦ When one Vendor started partnering with Kmart, Kmart often claimed
that its supplier was not living up to its agreement to keep two weeks of
inventory at all times. It turned out that this was due to the fact that the
two companies employed different forecasting methods.
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Performance Measurements
How to ensure VMI will enhance the business?
Operational improvements
◦ Internal
 The number of stock outs and duration
 Cost of material/service before and after
◦ External
 Customer satisfaction
 Improvement of delivery availability
 Competitive advantage considerations
End of Topic