Vendor-Managed Inventory (Vmi)

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Chapter 2: Literature review
2.1 Introduction
The literature review will examine the most important concepts and the approach that will be most dominant in this study. In this study, we will look at the supply chain and its performance (Axsater, 1996). It will also consider benchmarking for supply chain and also the manner in which changes could be conducted to make credible improvements. The issues affecting the Vendor-Managed Inventory will be looked at from the perspective of a supplier. In this literature review there will be four interconnected themes which will cover the reasons for VMI adoption, the barriers that affect implementation of VMI, the guidelines and the models that are used for the VMI implementation and the emerging issues. This review will first discuss the main reasons for VMI adaptation in supply chain management, which will include the definitions and developments, the advancement of the VMI in supply chain, advantages of the VMI and the supply chain management in relation to VMI. Then this review will focus on the barriers or limitations during the implementation of the VMI. This review will aim at explaining the issues that attract the supplier to the use of the VMI model for instance its relationship to the reduction of costs. The VMI has a big bearing on the cost of administration, cost of transport, cost of inventory, the service level of provision and the production of products. Also, in focus will be the limitations for these research for example the information technology that is required, the relationship of the customer supplier, the responsibilities of the supplier and the challenges this model faces in small entrepreneurship in comparison to bigger businesses. The guidelines that are responsible for the VMI will be another are of focus in the literature review there are quite a number of issues and steps that are followed in the implementation of this process. These steps may include; Partner Identification, Marketing Presentation to potential customer, Partner’s approval of proposal, Formal agreement is made when both parties agree, VMI implementation in full scale, GO-LIVE and Periodic Revision of inventory policy and review. 2.2 The drive for VMI adoption

A good understanding of the relationship between the customer service level and the inventory cost is the main reason for success in supply chain management. Positive improvements in this dimensions mentions are give most attractive projects and this is also recurrent in VMI. In the VMI there is always a reduction of costs and a substantive improvement in services rendered. Lowering inventory costs with a higher customer level is the customers’ main target (Axsater, 1996). The main objectives which aid in the development of a better collaboration between the supplier and the demand is speeding the supply chain (transportation), tensing different flows and reducing the bullwhip effect. 2.2.1 Reduced Cost

2.2.1. 1 Administration
Te ordering process in the VNI is a full responsibility of the supplier. The supplier’s workload and administrative costs may increase. However, this will decrease administrative costs for the customer. Misunderstandings between the customer and supplier can drastically decrease since the supplier will have a more accurate demand understanding. This will reduce error orders. This will help the producer and vendor to develop a demand plan to meet the customer’s demand well (Cross, 1993). 2.2.1.2 Inventory level

Inventory levels decreases considerably with the use of VMI. Safety stock is reduced highly if there is a direct link between the customer demand and the supplier. In this way, the customer can directly benefit this relationship since there will be a reduced risk in the stock out risk and a high decline in the inventory level. This is because no more inventories are needed than the customer demands. Focus is based more on the overall performance...
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