Vendor Managed Inventory

Strategic Partnering: Types of SP

• Quick Response:

– Vendors receive POS data from retailers, and use this information to synchronize production and inventory activities at the supplier. – The retailer still prepares individual orders, but the POS data is used by the supplier to improve forecasting and scheduling. – Example: Milliken and Company: The lead time from order receipt at Milliken’s textile plants to final clothing receipt at several of the department stores involved was reduced from eighteen weeks down to three weeks.

Strategic Partnering: Types of SP

• Continuous Replenishment: Vendors receive POS data and use it to prepare shipments at previously agreed upon intervals to maintain agreed to levels of inventory.

– Wal-Mart, Kmart

• Advanced Continuous Replenishment: Suppliers may gradually decrease inventory levels at the retailer’s store or distribution center as long as service levels are met. Inventory levels are thus continuously improved in a structured way.

Strategic Partnering: Types of SP

• Vendor Managed Inventory (VMI):JITD

– VMI Projects at Dillard Department Stores, J.C. Penney, and Wal-Mart have shown sales increases of 20 to 25 percent, and 30 percent inventory turnover improvements.

Advantages of SP

• Decrease required inventory levels • Improve service levels • Decrease work duplication • Improve forecasts

Advantages of SP

• Fully utilize system knowledge

– Consider the partnership between White-Hall Robbins (W-R), who makes over-the-counter drugs such as Advil, and Kmart. W-R initially disagreed with Kmart about forecasts, and in this case, it turned out that W-R forecasts were more accurate because they have a much more extensive knowledge of their products than Kmart does.

Disadvantages of SP

• Expensive advanced technology is required. • Supplier/retailer trust must be developed. • Supplier responsibility increases. • Expenses at the supplier often increase.

–Why? How can this be addressed?...