1. Supply Chain Management
Vendor Managed Inventory (VMI)

2. Supply Chain Management
VMI is essentially an integrated approach
whereby the inventory at the
distributor/retailer (downstream) is monitored
and managed by the manufacturer/vendor (upstream)

3. Supply Chain Management
Vendor
Customer A C B

4. Supply Chain Management
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

5. Supply Chain Management
Choose the correct answer:
Optimizes supply chain performance
Supplier has access to customer’s inventory data
Supplier is responsible for maintaining the inventory level required by the customer
The process is to resupply inventory by the vendor via scheduled reviews
All of the above

6. Supply Chain Management
Questions for Selecting VMI
What are your intentions?
What are the critical materials?
Which items/commodities have attributed to the greatest delays?

7. Supply Chain Management
Typical Benefits to Manufacturers
Lower inventory investments (raw and finished)
Better scheduling and planning
Better market information
Good relationship with customer
Visibility via information sharing

8. Supply Chain Management
Typical Benefits to Retailers
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. Supply Chain Management
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. Supply Chain Management
Electronic Data Interchange (EDI)

11. Supply Chain Management
EDI is Computer to computer exchange of business transaction in a standard format

12. Supply Chain Management
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

13. Supply Chain Management
Ownership of inventory in 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

14. Supply Chain Management
Requirements for Effective VMI
Advanced information systems
Top management commitment
Mutual trust
Information sharing
Management of the entire supply chain
Initial loss of revenues

15. Supply Chain Management
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.

16. Supply Chain Management
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

17. Supply Chain Management
End of Topic