VMI: What are you losing if you let your customer place orders?

  • Kaipia R
  • Holmström J
  • Tanskanen K
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Abstract

Managing the order-delivery processes between organisations has been a key issue in supply chain management. Despite of the increasing application of JIT, lean and agile practices and new information systems that increase the visibility in supply chains, a lot of problems still remain. Surveys among European companies indicate that no significant improvements have taken place in delivery performance during last decade. Vendor managed inventory (VMI) is a recent alternative for the order-delivery process. The fundamental change is that the ordering phase of the process is abolished, and the supplier is given both authority and responsibility to take care of the entire replenishment process. Despite of its advantages VMI has not yet become a standard mode of operation in very many companies. In this paper we will analyse the benefits of VMI from the viewpoint of managing the replenishment process of the entire product range, not the viewpoint of a single stock keeping unit (SKU). The case and simulation studies about VMI benefits have had so far focused on a single SKU or average SKU of a single supplier. The problem is that such a focus may not reveal the most substantial benefits from VMI. A time-based analysis method is developed for measuring the benefits of VMI in different situations. The hypothesis explored that by taking the whole product range viewpoint the advantages of VMI are more readily identified. The hypothesis is tested by using real-life demand data from three different grocery supply chains.

Author-supplied keywords

  • Logistics
  • Supply chain management
  • Vendor-managed inventory (VMI)

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