Abstract
Vendor managed inventory (VMI) is a prevailing service many suppliers offer their customers. By being on site with their customers, suppliers are better able to meet their customers' needs as well as expand their own business. This makes suppliers the experts of their commodity for their customers. This is beneficial to both parties. The customer sees a reduction of stockouts, improved on-time delivery, and increased visibility in multiple areas. Suppliers will see increased sales and better client relations. As VMI continues to become more common, both parties need to become partners in order to see the full extent of benefits. In this chapter, the authors will discuss the benefits, drawbacks, and implementation of VMI via AI and big data techniques from both the supplier and customer perspective.
TopIntroduction
VMI Implementation
The goals of vendor managed inventory (VMI) are fairly straight forward in that utilizing VMI can help develop relationships with customers and create overall value in the supply chain. Often, very large datasets are analyzed real time using large data sets and associated techniques (Big Data) and artificial intelligence (AI) to monitor inventory levels and forecast demands for various goods and the services associated with supply chain management (SCM) and logistical support services. This can be through reducing costs due to the unnecessary back and forth between supplier and customer. With VMI the vendor is managing the inventory so that sharing of information is more efficient as they already have real-time data. Value is also added through the relationship built between the supplier and their customer. The VMI supplier can act as a specialist and sourcing tool for their customers which will better prepare the customer to meet the needs of their customer as well as increase business for the supplier. The only drawbacks to VMI is that it can reduce the number of contracts a customer can have, preventing them from having suppliers bid against each other, and the cost associated with the initial implementation of VMI services.
Purpose
One way to enhance SCM is through regular and consistent monitoring of product and customer inventory (Kailash, et al., 2018). This chapter will highlight one monitoring option referred to as vendor management inventory (VMI) and how it is used to enhance SCM among several companies (i.e., Fastenal, We-Ef, Service Link, Giant Eagle, and Sheetz.) This chapter reviewed each company’s current goals and objectives to determine the most effective way to utilize VMI. Based on the various goals and objectives it was estimated that the optimum strategy (
Rego, et al., 2018; Sharma & Joshi, 2018; Sharma & Sharma, 2018; Smith, 2022a, 2022b) to assist each company was to further enhance their use of VMI, helping the manufacturer or supplier become responsible for monitoring their customer’s inventory and replenishing their products, and the companies could meet their goals and objectives.
Background
According to the chartered institute of procurement & supply (CIPS), “vendor managed inventory (VMI) is a supply chain agreement where the manufacturer or supplier takes control of the inventory management decisions for the seller or retailer” (VMI, 2022, p. 1). In essence, the manufacturer or supplier becomes responsible for monitoring their customer’s inventory and replenishing their products based on both of their established goals and objectives. To be successful, the system involves trust and true collaboration. This can be beneficial for both parties for several reasons. Some of these benefits include improved efficiency, reduction in cost, reduction in complexity, and improved data metrics which ultimately leads to an increase in sales. We will examine VMI and its use by three local Pennsylvania companies.
VMI has been around since the 1980s with the concept first being introduced by Procter & Gamble and Walmart. Since the start in the 1980s, it has been the number one distribution system for companies worldwide (Rompa Group, 2022). VMI is useful when outsourcing your distribution is more profitable. Companies can focus on sales and marketing for expanding their business’s market share. In a study, conducted at the University of Nebraska, they found sufficient economic benefits could be achieved with the use of a technology-enabled vendor-managed inventory (VMI) system in a unique chain such that a firm could justify spending the money necessary to create the infrastructure to support it (Southard & Swenseth 2008)
Key Terms in this Chapter
Supply Chain Management (SCM): Managing the entire flow of actual goods and services from raw materials into final products/services to the ultimate customer. Includes all processes in that transformation and communication in both forward and reverse logistical services.
Business Case Study: A type of qualitative case study approach that used the information surround the company or industry that helps the reader understand the context of which the best business practices described in the study.
Lean Operations: A general term the suggests that a business enterprise practices low cost and high quality in its operational tactics and strategy that meets or exceeds customer demands.
Artificial Intelligence (AI): Through the processes of shallow and/or deep machine-learning analytical techniques, computer systems that are either supervised or unsupervised can mimic human intelligence (e.g., detecting decision-making patterns associated with visual perception, speech recognition, and operational improvements).
Vendor Managed Inventory (VMI): A generic term that prefers to a supply chain agreement where the manufacturer and/or supplier takes significant degree control of the routine inventory management decisions for the seller and/or retailer.
Big Data: Through various processes exercised on extremely large datasets, patterns and predictive analytics can be made to help the enterprise make better and more informed decisions.