What is Supply Chain Management ?  Integrating Management and information technology to flourish performance.  What Is Vendor Managed Inventory ? 1. Vendor Managed Inventory or VMI is a process where the vendor creates orders for their customers based on demand information that they receive from the customer. 2. VMI involves collaboration between suppliers and their customers which changes the traditional ordering process.  Schematic Diagram of VMI WHY USE VMI ? VMI removes the need for the customers to have significant safety stock. Lower inventories for the customer can lead to significant cost savings.  The customer can make profit from reduced purchasing costs. As the vendor receives data so the customer don’t need to produce purchasing costs ever.  Moreover, the need for purchase order corrections and reconciliation is removed which further reduces purchasing costs.  DUAL BENEFITS (both Supplier and Customer) 1. Less data errors and the overall speed of processing is increased. 2. Having aim to provide better service to the end consumer. 3. Purchase orders are generated on predefined basis. 4. Relation between suppliers and customers are getting strong enough. Customer Benefits 1. A decrease in stockouts and a decrease in inventory levels. 2. Planning and ordering cost will be decreased. 3. Overall service level is elevated. 4. The customer is more focused in providing great service.  Suppliers Benefits 1. A reduction in customer ordering errors. 2. Promotions can be easily promoted to inventory plans. 3. Customers' point of sell data makes forecasting easier. 4. Philosophy to customer’s stock levels helps to identify priorities. Comparison between VMI & RMI Vendor Managed Inventory(VMI) 1. Vendor stocks the resources in suppliers premises. 2. Vendor is solely responsible for the stock availability. 3. VMI focuses on collaboration and share information between trading partners. 4. It is termed as a model of family business. Retail Managed Inventory (RMI) 1. Supplier stocks the resources in buyer’s premises.2. Retailer is solely responsible for the stock availability. 3. RMI always focused on improving forecasting. 4. It is termed as business model of business.

1. Ahsanullah University of Science And Technology
Department of Mechanical And Production Engineering
A thesis Proposal submitted for the
Partial Fulfillment of the requirements for the Degree of
BACHELOR OF SCIENCE IN INDUSTRIAL AND PRODUCTION ENGINEERING
By
Md Shahadat Akil 150207113
Asif Rayhan Chowdhury 150207132
Abu Talha Zobaer 130207083
-: Supervised by :-
Mr. Md. Shah Ashiquzzaman Nipu
Lecturer, Dept. of MPE, AUST

2. What is Supply Chain Management ?
Integrating Management and information technology to flourish performance.
2

3. Vendor
Managed
Inventory
(VMI)
3

4. What Is Vendor Managed Inventory ?
1. Vendor Managed Inventory or VMI is a process where the vendor creates orders
for their customers based on demand information that they receive from the
customer.
2. VMI involves collaboration between suppliers and their customers which changes
the traditional ordering process.
4

5. Schematic Diagram of VMI
5

6. WHY USE VMI ?
 VMI removes the need for the customers to have significant safety
stock. Lower inventories for the customer can lead to significant
cost savings.
 The customer can make profit from reduced purchasing costs. As
the vendor receives data so the customer don’t need to produce
purchasing costs ever.
 Moreover, the need for purchase order corrections and
reconciliation is removed which further reduces purchasing costs.
6

7. 7

8. DUAL BENEFITS (both Supplier and Customer)
1. Less data errors and the overall speed of processing is increased.
2. Having aim to provide better service to the end consumer.
3. Purchase orders are generated on predefined basis.
4. Relation between suppliers and customers are getting strong enough.
Customer Benefits
1. A decrease in stockouts and a decrease
in inventory levels.
2. Planning and ordering cost will be
decreased.
3. Overall service level is elevated.
4. The customer is more focused in
providing great service.
Suppliers Benefits
1. A reduction in customer ordering errors.
2. Promotions can be easily promoted to
inventory plans.
3. Customers' point of sell data makes
forecasting easier.
4. Philosophy to customer’s stock levels
helps to identify priorities.
8

9. Comparison between VMI & RMI
Vendor Managed Inventory(VMI)
1. Vendor stocks the resources in
suppliers premises.
2. Vendor is solely responsible for the
stock availability.
3. VMI focuses on collaboration and
share information between trading
partners.
4. It is termed as a model of family
business.
Retail Managed Inventory (RMI)
1. Supplier stocks the resources in
buyer’s premises.
2. Retailer is solely responsible for the
stock availability.
3. RMI always focused on improving
forecasting.
4. It is termed as business model of
business.
9

10. Previous Research(Background)
10

11. Background (Relevant to VMI)
Serial no Authors Type Tools Remarks
01 (Nachiappan,
Gunasekaran, &
Jawahar, 2007)
SM Genetic Algorithm
Non-linear integer
Programming (NIP)
i) Obtained optimal transaction
quantity and optimal channel
profit.
ii) Parameters
1. Sales quantities
2. Sales Price
3. Transaction quantities
(Vendors and buyers)
iii) Robustness is evaluated by
changing limits on sales
quantity, slope of demand
function, cost of holding and
cost of setup per order.
SM – Single Vendor Multiple Retailer; SS – Single Vendor Single Retailer; MM- Multiple Vendor Multiple Retailer11

12. Serial no Authors Type Tools Remarks
02 (Disney, Potter, &
Gardner, 2003)
SS Dynamic Method
(Simulation)
i) Better use of transport vehicles.
ii) 3 scenarios
1. Traditional supply chain
2. Internal supply chain
3. VMI
iii) Enables to minimize transport
demand without negatively impacting
the overall dynamic performance of
supply chain for short and long term.
iv) Enables a smoother dynamic
response than that associated with the
traditional supply chain, enabling a
reduction in manufacturing on costs.
03 (Haq & Kannan, 2006) MM FAHP (Fuzzy Analytical
Hierarchy Process)
i) Evaluated how to select vendors.
ii) Examined the structure of the
decision hierarchy whether it represents
decisions and key factors for vendor
selection.
iii) It can be used for both qualitative and
quantitative criteria.
iv) Pairwise comparison reduces the
dependency on human judgements.
12

13. Serial no Authors Type Tools Remarks
04 (Hulshof, 2008) MM Algorithm
(Branch and bound)
i) Inventory routing problem (IRP)
1. Inventory decision
2. Routing decision
ii) Integrated the inventory and routing
decisions over ORION(inventory) and
SHORTEC(routing) Softwares .
iii) To minimize distribution cost in the
IRP for gas distribution and mitigate the
seasonal peak of customer deliveries in
winter months for short and long term
planning.
iv) Created an efficient plan on the short
term, maximizing the volume per
kilometer.
v) Created an efficient plan on the long
term, minimizing the number of visits.
05 (Jaber & Goyal, 2008) SM Mathematical Model
(Simulation)
i) Coordinating supply chain players with
decreasing costs or remaining costs
same.
ii) Savings generated from co-ordination
would be distributed among the players
of the chain.
13

14. Propose to Work:-
1. Our works will be a two-echelon distribution process combined of
traditional(RMI) and vendor-managed inventory system.
2. Our aim is to sort out the benefits of vendor-managed inventory over total
incurring costs of holding, setup, ordering and transportation costs.
3. We will try to visualize the performance of these two systems by comparing
total system inventory cost through locating an optimal order quantity and
reorder point.
14

15. Methodologies

16. Genetic Algorithm
In our work, We will present the sensitivity of important parameters .
These parameters include: retailer’s holding cost, ordering cost and
transportation cost; vendor’s holding and setup costs.
We will test the sensitivity of the system by changing values of to demonstrate
how these parameters impact systems.
So, We will take the advantage of Genetic Algorithm.
Therefore, it is easy to understand, Modular, supports multiple
parameters and Good optimization for noisy or stochastic
environment.
16

17. References:-
1. Nachiappan, S. P., Gunasekaran, A., & Jawahar, N. (2007). Knowledge management system for
operating parameters in two-echelon VMI supply chains. International Journal of Production Research,
45(11), 2479–2505. https://doi.org/10.1080/00207540601020478
2. Disney, S. M., Potter, A. T., & Gardner, B. M. (2003). The impact of vendor managed inventory on
transport operations. Transportation Research Part E: Logistics and Transportation Review, 39(5), 363–
380. https://doi.org/10.1016/S1366-5545(03)00014-0
3. Haq, A. N., & Kannan, G. (2006). Fuzzy analytical hierarchy process for evaluating and selecting a
vendor in a supply chain model. International Journal of Advanced Manufacturing Technology, 29(7–8),
826–835. https://doi.org/10.1007/s00170-005-2562-8
4. Hulshof, P. J. H. (2008). How VMI can be successful in gas distribution: a solution methodology for
the inventory routing problem in gas distribution. 2010. Retrieved from http://essay.utwente.nl/59271/
5. Jaber, M. Y., & Goyal, S. K. (2008). Int . J . Production Economics Coordinating a three-level supply
chain with multiple suppliers , a vendor and multiple buyers. International Journal of Production
Econmics, 116, 95–103. https://doi.org/10.1016/j.ijpe.2008.08.001
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