When Does A Supply Chain Member Benefit from Vendor‐Managed Inventory?

Jun Ru · Ruixia Shi

38 citations0/0 files storedProduction and Operations Management

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Supply Chain and Inventory Management Quality and Supply Management Sustainable Supply Chain Management

Abstract

Enabled by the advances in information technology (IT), many supply chain partners have adopted the practice of vendor‐managed inventory (VMI) to improve operations efficiency. While the IT investment for VMI implementation can be significant, the benefits of VMI to different supply chain members are not obvious based on anecdotal evidences and empirical studies. This paper studies the effects of VMI on a supply chain consisting of one manufacturer and one retailer to shed light on when an IT investment for VMI adoption can be justified. We show that whether the two supply chain members benefit from VMI depends on how the holding or shortage cost increment from the manufacturer to retailer compares with two corresponding critical values. We then develop comparative statics results on how these critical values change with respect to different parameters. Interestingly, the retailer is more likely to benefit from the adoption of VMI when its inventory holding cost is low, and the manufacturer is more likely to benefit from VMI adoption when its inventory holding cost is high, contradicting what our intuitions would suggest and what has been prescribed in the literature.

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References

2000The Value of Information Sharing in a Two-Level Supply Chain 2002Designing and Managing the Supply Chain 2002The critical success factors for ERP implementation: an organizational fit perspective 1998Beyond the productivity paradox 1999Value of Information in Capacitated Supply Chains 2004Manufacturer Benefits from Information Integration with Retail Customers 2005Do Suppliers Benefit from Collaborative Relationships with Large Retailers? An Empirical Investigation of Efficient Consumer Response Adoption 2011Trust in Forecast Information Sharing

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2020Competitive Advantage with Vendor Managed Inventory 2019The impact of information technology investment on enterprise financial performance in China 2024Disruptive factors of vendor-managed inventory in the manufacturing industry 2022Configurations of financing instruments for supply chain cost reduction: evidence from Chinese manufacturing companies 2022The relationship between vendor managed inventory and operational performance

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