Vendor Managed Inventory Is Here Term Paper

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Inventory management through VMI leads to a much more cohesive, integrated and concerted response to customer demand in the companies who have turned this process area into a best practice.

Additional benefits of adopting an aggressive state-of-the-art VMI system include the following, which are defined by Askegar and Suleski (2) in table 1 of their landmark research study on the topic. The ability of manufacturers and distribution companies alike to increase their level of segmentation to customer needs and requirements is immediately evident in companies who achieve best-in-class performance on VMI. This higher level of performance translates into an above-average level of Return on Assets (ROA) and also a higher level of performance on Return on Invested Capital (ROIC) which is a critical measure of how well warehouse, shipping and fulfillment operations are being utilized in conjunction with VMI workflows.

Secondly, these best-in-class companies who are relying on VMI as a competitive advantage also are better able to manage significant shifts in demand management emanating from their many distribution and selling channels. A natural progression for many of these manufacturers who have attained best practices is to also pursue a combined sales and operations planning (S&OP) process workflow with their largest suppliers and customers. In effect these manufacturers and distribution companies who have VMI-based processes running effectively throughout their supply chains are more capable of responding to wide variations on customer demand, regardless of its origination point. Third, a commitment to turning VMI into a major competitive strength also delivers exceptionally high levels of visibility and control through supply chains as well. The greater the level of supply chain visibility, the higher the level of collaboration throughout a supply chain, which translates into a higher level of demand synchronization across the entire supplier network.

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It may appear at first glance that suppliers in the same supply chain to a manufacturer might be considered competitors, yet in fact the greater the level of synchronization between them, the faster their common buyer (customer) grows and the more demand for their products. Every supplier wins when the buyer is more successful, hence the focus increasingly in VMI implementations to provide both multi-layer supply chain visibility in addition to collaboration across the supplier base as well. Ultimately the many facets of a successful VMI strategy can make a major difference in both distribution and manufacturing-based companies' ability to consistently and effectively compete in a turbulent global environment.

Conclusion

At the intersection of demand, supply and product requirements is the critical point of execution for nearly every distribution or manufacturing company. Cecere & Martin (4) have applied the AMR Research Demand Driven Supply Network (DDSN) Model to the many requirements manufacturers have for transforming their companies by making VMI, supply chain visibility and the entire spectrum of analytics and measures of performance to pertaining to these processes and strategies a critical part of their companies going forward. VMI is here to stay and is also transforming many supply chains through its distribution of risk and higher levels of inventory visibility throughout complex supply chains......

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