VMI and SMI programs

Abstract

Supplier managed inventory (SMI) and vendor managed inventory (VMI) have emerged as potential first steps towards successfully integrating activities and information across multiple firms. Despite the potential benefits, managers interested in these programs often cannot generate the “buy‐in” among fellow management and executives or among those in the collaborative firm. The barriers stem from a misunderstanding of the concepts and an inability to demonstrate their potential effect on shareholder value across both firms. This paper draws a distinction between SMI and VMI and identifies where the approaches should be applied. A simultaneous economic value added (EVA) analysis from the customer and supplier perspectives is proposed as a means to demonstrate the effect on shareholder value, measure performance, and overcome the obstacles confronting implementation.

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