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

Abstract

Managing the order-delivery processes between organizations is a key issue in supply chain management. Despite the increasing application of just-in-time (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 signifi cant 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 companies. In this paper the benefits of VMI are analyzed from the viewpoint of managing the replenishment process of the entire product range, not the viewpoint of a single stock keeping unit. 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.

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