1. 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
(upstream)
2. VMI rationale ….
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
3. VMI includes …
• Determining appropriate order
quantities
• Managing proper product mixes
• Configuring appropriate safety stock
4. Typical Benefits to
Manufacturers
• Lower inventory investments (raw
and finished)
• Better scheduling and planning
• Better market information
• Closer customer ties and preferred
status
5. Typical Benefits to Retailers
• Fewer stock-out with higher
inventory turnover
• Better market information
• More optimal product mix
• Less inventory in channels (transfer
costs)
• Lower administrative replenishment
costs
6. 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
8. EDI Benefits …
• 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
9. Ownership of inventory
• 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
10. Requirements for Effective
SP(Strategic Partnering)
• Advanced information systems
• Top management commitment
– Information must be shared
– Power and responsibility within an organization
might change (for example, contact with
customers switches from sales and marketing
to logistics)
• Mutual trust
– Information sharing
– Management of the entire supply chain
– Initial loss of revenues
11. Important SP Issues
• Inventory ownership:
– Retailer owns inventory
– Supplier owns the goods until they are
sold (consignment)
• Why would a firm do this?
• Performance measures: Fill rate,
inventory level, inventory turns
12. Important SP Issues
• Confidentiality
• Communication and cooperation
– When First Brands 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.
13. Steps in SP Implementation
• Contractual negotiations
– Ownership
– Credit terms
– Ordering decisions
– Performance measures
• Develop or integrate information systems
• Develop effective forecasting techniques
• Develop a tactical decision support tool to
assist in coordinating inventory
management and transportation policies
14. Examples of SP Successes
and Failures
• Western Publishing-Golden Books:
– Western Publishing is using VMI for its Golden Books
line of children’s books at several retailers.
– POS data automatically triggers re-orders when
inventory falls below a reorder point.
– This inventory is delivered either to a distribution
center, or in many cases, directly to the store.
– Ownership of the books shifts to the retailer once
deliveries have been made.
Notas del editor
Wal-Mart do not own most of the merchandise in their retail stores. They own them briefly as they move through the check-out counter.
