Vendor Managed Inventory

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Essay on Vendor Managed Inventories
Date of submitting: 30th of October 2012 Length of essay: Not more than 10 pages. So you may use a bit more space, as compared to Assignment 1. You can write either alone or together with ONE other student

Write an essay on Vendor Managed Inventories (VMI). Remember to enclose a list of references that you have used.

Remember to write your name(s) and student number (s) on a front page saying: Essay on the VMI.

Vendor Managed Inventories

LOG 711 Supply Chain Management 1 Essay: Vendor Managed Inventories Assignment No. 2 Prepared by: Razib Ahmed Student No. 121363

Molde University College Autumn 2012

Vendor Managed Inventories Abstract

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Vendor Managed Inventories (VMI) is an effective supply chain strategy where the vendor takes the responsibility to maintain the inventory of the customer and in return vendor, buyer and or both parties are benefited by the proper utilization of it. This paper explains how the total VMI process work toward the mutual goal of suppliers and customers. It has the explanation how the VMI helps to increase sales, reduces operating cost and build strong customer relationships for the vendor. From the customer side it explains how the VMI helps customer to reduce inventory, reduce administrative costs, less stock-outs and increase sales etc. The information collected for this paper is all from secondary sources means scientific journals, various research papers, and scholarly books. Proper citation has been used wherever it is necessary.

Vendor Managed Inventories Contents 1. Chapter 1 … 1.1 Introduction … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … …

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4 4 4 5 6 6 6 6 7 7 8 11

1.2 Literature review

1.3 Traditional supply chain vs. VMI 1.4 How VMI works 2. Chapter 2 … …

2.1 Benefits for the manufacturer … 2.2 Benefits for the distributors … 2.3 Negative impacts of VMI Conclusion References Appendix … … … … … … … … … … … … …

Vendor Managed Inventories Chapter 1 1.1 Introduction Vendor Managed Inventories (VMI) can be defined as the production and distribution system where the manufacturer or the vendor takes major responsibility on behalf of the buyers.

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The key point form the above definition is that in the case of VMI vendor takes the responsibility of the buyer’s ordered inventory (Waller et al., 1999). VMI can also be defined as the tool that is used to improve customer service and to reduce inventory cost for the manufacturer (Achabal et al., 2000; Daugherty et al., 1999 & 2000). VMI was first implemented between Wal-Mart and Proctor & Gamble in the late 1980s where the retailer demanded the vendor to take the responsibility for the ordered goods (Cachon & Pisher, 1997). Now-a-days, VMI is not only limited to retailing business but also in different sectors of business for example, Shell Chemical and Campbell Soup have used VMI as a successful tool to improve inventory management (Cachon & Pisher, 1997). It has also become popular to the grocery and garments industry (Schenck & McInerney, 1998). It is clear that the growing popularity of VMI has proved now and in the next chapter we will discuss this in detail with the help of authentic sources. 1.2 Literature Review There are many literatures available that explains inventory management system. In the literature review part we tried to seek how previous research supports that VMI helped manufacturer and buyers to achieve their mutual benefit. One research suggests that VMI helps to reduce inventory cost (Yao et al., 2007). In the case profit increments, VMI helps to increase buyer’s profit (Dong & Xu, 2002). Another study suggests that VMI helps to improve customer service level, inventory planning and reduce costs (Clalssen et al., 2007). In the case of service level increment one study shows that VMI helps...
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