What Is Vendor Managed Inventory?

The so-called VMI (Vendor Managed Inventory) is a method in which the user and the supplier obtain the lowest cost. The supplier manages the inventory under a common agreement, and constantly monitors the implementation of the agreement and corrects the content of the agreement, so that inventory management can be obtained. A collaborative strategy for continuous improvement. ^[1] This inventory management strategy breaks the traditional separate inventory management model. It reflects the integrated management thought of the supply chain and meets the requirements of market changes. It is a new and representative inventory management idea. At present, the role of VMI in the distribution chain is very important, so it has been valued by more and more people.

VMI

Information Sharing

Retailers help suppliers plan more effectively, and suppliers earn points from retailers

The following points should be paid attention to when implementing VMI:

Trust issue

This cooperation requires a certain amount of trust, or it will fail. Retailers need to trust suppliers, do nt interfere with the supplier s monitoring of shipments, and suppliers have to do more work to convince retailers that they can not only manage their own

A. Due to the different positions of core enterprises in the supply chain and their forms, they are generally divided into two categories based on the location of core enterprises. The downstream of the supply chain is the core enterprise; B. The upstream of the supply chain is the core enterprise.

Due to the different positions of core enterprises in the VMI system, the cooperation methods between core enterprises and their partners are different. For example, when core enterprises are upstream, they generally choose self-operated logistics, and when they are downstream, they can choose self-managed logistics or outsourced logistics . This will lead to changes in the VMI operating structure. The corresponding operation modes will be proposed for the two situations A and B respectively.

As mentioned earlier, in the VMI system, the core enterprise can be either upstream of the supply chain or downstream of the supply chain, and when it is downstream, it can be either the middle of the supply chain or the supply chain. End. Obviously, the operation mode of VMI is different in different situations. There are mainly three cases: supplier-manufacturer (nuclear), supplier-retailer (nuclear), core enterprise (generally manufacturer)-distributor. (Or retailer).

Supplier-manufacturer VMI operation model

In this mode of operation, in addition to being a core company, it generally has the following characteristics.

The production scale is relatively large, and the manufacturer's production is generally stable, that is, the daily demand for parts or raw materials does not change much; the supplier is required to supply a small quantity each time, and generally meets the spare parts for one day, some even It is several hours; the frequency of supply is high, sometimes even two to three times a day; in order to maintain continuous production, out-of-stock is generally not allowed, that is, the service level is required to reach more than 99%.

Because manufacturers in this model must have dozens or even hundreds of suppliers to supply them with spare parts or raw materials. It is obviously uneconomical to have every supplier build a warehouse near the manufacturer. Therefore, you can set up a VMI HUB near the manufacturer. Joining the VMI HUB has the following effects:

Buffer effect . Since a customer has to correspond to N suppliers, if the customer has a high requirement for the frequency of supply, there may be situations where multiple suppliers deliver the goods at the same time. Because there is no prior arrangement, a chaotic unloading scene will inevitably occur. Affect the production order and bring inconvenience to the normal work of the enterprise. With VMI HUB, the above phenomenon can be avoided with a professional distribution method, which plays a buffer role.

Added in-depth services . When there is no VMI HUB, the suppliers are independent from each other, and the delivered goods are separated from each other. When the VMI HUB is provided, it will provide picking services before delivery, and the VMI HUB will be based on the production enterprise. The requirement is to configure the spare parts according to the proportion of the finished product, and then send it to the manufacturer, which improves the production efficiency of the manufacturer.

In the normal implementation of VMI, not only does Supplier A and VMI HUB exchange inventory information, but also includes production planning, demand planning, purchasing planning, historical consumption, replenishment planning, transportation planning, and inventory information. The information exchange between Manufacturer A and VMI HUB is completely, real-time and automatically.

When there is a sudden change in demand, for example, due to a sudden increase in sales by the manufacturer, the inventory in the VMI HUB cannot meet the manufacturer's demand in a timely manner, then the implementation structure of the VMI is changed accordingly. VMI HUB directly sends the replenishment plan to the supplier's information system. At this time, the supplier directly replenishes the manufacturer, thereby saving time and costs. We call the supplier's direct replenishment to the manufacturer without going through the VMI HUB as Cross-Docking.

Supplier-Retailer VMI Operation Model

When the retailer transmits relevant information such as sales to the supplier through EDI (usually a replenishment cycle data, such as 3 days or even 1 day), the supplier makes a demand forecast based on the received information, and then forecasts The information is entered into the material requirements planning system (MRP), and according to the existing inventory in the enterprise and the inventory of the retailer's warehouse, production replenishment orders, production planning, and production are carried out. The finished products are stored, sorted, packed, and shipped to retailers.

The differences between the supplier-retailer VMI operating model and the supplier-manufacturer operating model are as follows:

In the face of a relatively large retailer, it is not necessarily as shown in Figure 4. After "receiving the goods", an account payable is generated. Usually large retailers (such as: Wal-Market) require that the supplier pay only after the supplier's goods are actually sold, otherwise no "accounts payable" will be generated.

This mode generally does not need to build the central link of VMI HUB. Because for retailers, the products supplied by the two suppliers are independent of each other, and they are not required at the same time. Unlike the manufacturers who need parts or raw materials, they must obtain both products at the same time. of.

Participation models of third-party logistics companies

In the actual implementation process, the participation of third-party logistics service providers is sometimes required. The reasons are as follows:

In the supplier-manufacturer model, whether for the manufacturer or the supplier, its core competitiveness is mainly reflected in its manufacturing, not logistics. Obviously, it is not economical for the supplier or manufacturer to manage the VMI HUB.

Under the supplier-retailer model, due to the wide range of retailers' retail products and the geographical distance between suppliers and retailers, the lead time for replenishing goods directly from suppliers to retailers is longer, which is not conducive to Make accurate demand forecasts and deal with unexpected situations. The compromise solution to this problem is that the supplier rents or builds a warehouse near the retailer, and this warehouse is responsible for supplying the retailer directly.

Based on the above reasons, it is most appropriate for a highly specialized company to manage this VMI HUB or warehouse, and the ideal target at this time is a "third-party logistics company". Moreover, supply chain management emphasizes that each company in the supply chain should give full play to its core competitiveness, which is exactly the third-party logistics company to adapt to the requirements of this inventory operation model and give full play to its characteristics and advantages. When a third-party logistics company joins, the VMI operation mode changes accordingly as shown in Figure 4.

Core Enterprise-Distributor Model

In this model, the core enterprise acts as the supplier role in the VMI. Its operation mode is roughly the same as the previous two. The core enterprise collects sales information of each distributor and makes predictions, and then manages the distributor's inventory in accordance with the forecast results And distribution. Since there is only one supplier in this model, there is no problem of establishing a warehouse near the distributor. The core enterprise can uniformly arrange the distribution problem to each distributor according to the actual situation with each distributor, and can ensure that each batch is delivered in an economic batch manner, and the route of each distribution can be adjusted to The best delivery route.