Osama Odah
Legendary Success is my goal
What is Supply Chain Management?
Supply chain management (SCM) is to apply a total system approach to manage the entire flow of information, materials, and services in fulfilling a customer demand (Li and Wang 2006). This system is comprised of all organizations that are involved in transforming raw materials to a final product. Therefore, the major role of SCM is to develop mechanisms that can align the objectives of independent supply chain members and coordinate their decisions and activities so as to optimize system performance (Li and Wang 2006).
Vendor Managed Inventory (VMI)
Vendor Managed Inventory (VMI) is a supply chain mechanism that is concerned with streamlining the flow of materials and products across the supply channel starting from the suppliers to the end customer. Furthermore, its action plan includes an incentive scheme to allocate the benefits from coordination among the channel members so as to entice their cooperation (Burke 1996, Williams 2000, and Kaipia et. al. 2002). In the following we will state the major benefits of implementing VMI for both the vendor and the buyer.
Benefits to the Vendor include:
- Synchronizing the inventory, replenishment, shipment, and production activities with retailers’ actual sales, and systematically reducing the total cost associated with those activities.
- Forecast visibility. This will help to end the bullwhip effect
- Inventory level visibility
- Agreed-upon minimums
- Long term commitment from customer
Benefits to the Buyer include:
- Reduced inventory levels
- Assurance of not having shortages
- Improved fill rates and customer service
- Decreased ordering costs
- Focused resources on core business
There are too many real life examples of saving resulted because of implementing VMI. One of the most popular examples is GE VMI program with Thomas and Betts in mid-1994. Their operating costs dropped to 8 to 10% (Burke 1996).
References
[1] Li, X., and Wang, Q., “Coordinatin mechanisms of supply chain systems”. European journal of operational research, 2006.
[2] Yao, M., and Chiou, C., “On a replenishment coordination model in an integrated supply chain with one vendor and multiple buyers” European journal of operational research vol. 159, 2004, pp. 406-416.
[3] Burke, M. “It’s time for Vendor Managed Inventory”, Industrial Distribution vol. 85, issue 2, 1996.
[4] Williams, M. “Making consignment- and vendor-managed inventory work for you”. Hospital Materiel Management Quarterly, vol. 21, 4, 2000, pp. 59-63.
[5] Kaipia, R., Holmstrom, J., and Tanskanen, K. “VMI: What are you losing if you let your customer place orders?” Production Planning & Control, vol. 13, 1, 2002, pp. 17–25.
