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Vendor managed inventory
Vendor Managed Inventory (VMI) is an approach where the manufacturer or vendor monitors and manages the inventory levels at the distributor or retailer. The key aspects of VMI are: 1. The vendor has access to the customer's inventory data and is responsible for maintaining the required inventory levels. 2. It optimizes supply chain performance by pushing decision making responsibility upstream to the vendor. 3. Benefits include lower inventory costs, fewer stockouts, improved information sharing and customer satisfaction.
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Vendor managed inventory
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- 2. VMI is essentiallyan integrated approach whereby the inventory at the distributor/retailer (downstream) is monitored and managed by the manufacturer/vendor (upstream)
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- 4. VMI underlying principal Bypushing 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
- 5. Choose the correctanswer: 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
- 6. Questions for SelectingVMI What are your intentions? What are the critical materials? Which items/commodities have attributed to the greatest delays?
- 7. Typical Benefits toManufacturers Lower inventory investments (raw and finished) Better scheduling and planning Better market information Good relationship with customer Visibility via information sharing
- 8. Typical Benefits toRetailers 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
- 9. VMI success factors 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
- 10. 6 Rules to theRoad
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- 12. EDI is Computer tocomputer exchange of business transaction in a standard format
- 13. EDI Benefits Quickaccess 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
- 14. Ownership of inventoryin VMI 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
- 15. Requirements for EffectiveVMI Advanced information systems Top management commitment Mutual trust ◦ Information sharing ◦ Management of the entire supply chain ◦ Initial loss of revenues
- 16. Important VMI Issues Inventory ownership: ◦ Who owns inventory ◦ In case of Supplier owns the goods until they are sold Why would a firm do this? Confidentiality 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.
- 17. Performance Measurements Howto 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
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