Design and integration aspects of Vendor Managed Inventory systems

Abstract

This study looks into a concept of Supply Chain Management that has received a lot of

interest in both industry and academia, Vendor Managed Inventory, a concept that changes

the traditional order-to-delivery process from having a customer placing orders to a supplier,

to instead having the supplier be responsible for placing orders and keeping customer

inventory levels within agreed limits. Most previous VMI research has been focusing on retail

and grocery supply chains, and has been devoted to comparing the traditional order-todelivery

process with the VMI process. A customer’s perspective has also dominated previous

research, and hence this thesis has focused on industrial supply chain relationships. In

particular, the focus has been on the supplier’s possibility to really utilise VMI.

The objective of this study is to identify, analyse and develop models to better obtain the

possibilities to render more effective production planning and logistics through the integration

of systems, information flow and processes when using the concept Vendor Managed

Inventory in an industrial setting. The objective is also to evaluate what such integration

would lead to. The overall purpose of this study is to enhance theoretical knowledge in both

industry and academia about the VMI concept when it is used in contexts other than retail,

and especially to determine how the manufacturing supplier could leverage the possible

benefits obtained through a VMI relationship.

For the scientific community, this licentiate thesis adds theory to the existing body of

knowledge regarding the usage of VMI in contexts other than retail, and especially by

examining a supplier’s role in the VMI relationship. The thesis also provides some guidance

to industry regarding the concept of VMI for those companies who are interested in

implementing such a relationship.

The thesis consists of an introductory essay and a collection of three research papers. In order

to answer the different research questions in the three papers, a few different research

methods have been used. The first paper used a literature study, empirical data and a focus

group technique to answer the research question. The second paper included in the thesis is

based on a multiple case study where Swedish companies who have implemented VMI were

scrutinized. The third and final paper used computer simulation as the main research method.

The findings of the study are first of all a proposed framework for characterizing the design of

VMI systems in order to be able to study and analyse different VMI systems. The framework

illustrates that there are many ways to configure VMI systems, which has often been

overlooked in previous research. The findings indicate that there probably are configurations

that are not optimal, if benefits are supposed to be given to both a supplier and a customer in a

VMI relationship. The research results from the second research paper propose that a supplier

is not solely responsible if he manages to utilise the VMI information in his upstream

planning processes; attention is called to the design of a VMI system and contextual factors

that vary depending on the environment in which the VMI system is being used. The design

of a VMI system is found to be very important for being able to really utilise the concept’s

potentials. The findings from the third and final paper suggest that the supply chain would

benefit if a supplier would reach a higher level of integration when using the concept of VMI,

by taking more sources of need into consideration in each replenishment planning cycle. This

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would imply that a supply chain would benefit if a VMI system were designed to support a

higher level of integration.

The licentiate thesis’ contribution to the scientific community is a framework to be able to

analyse different designs of VMI systems in order to find those configurations that might not

be so beneficial and those that are more optimal from a supply chain perspective. The thesis

also contributes new knowledge about what affects a supplier’s possibility to utilise VMI

information in his upstream planning processes, to be added to previous findings. Another

contribution is the integration model where three different dimensions of integration in VMI

relationships were identified. The final contribution of the thesis is the findings suggesting

that there is a benefit to the whole supply chain if reaching a higher level of integration when

using a VMI system.

One of the industrial contributions of the licentiate study is the framework that could be a

foundation when discussing the design of a VMI system between a customer and a supplier.

Another contribution is the identified need of understanding how the design of the VMI

system, and in which IT system that inventory is controlled, will affect how well the concept

of VMI might be utilised. The final contribution is to provide a guideline for designing a VMI

system that would reach a higher customer integration when doing VMI replenishments, since

it would affect the whole supply chain by requiring fewer inventory levels in order to

maintain set service levels.

The research project has been conducted in close cooperation with industry, and especially

with Alfa Laval and Ericsson who have been industrial partners in this project. The project

has been financed by VINNOVA and CeLIT.

• author: Ståhl Elvander, Mikael
• supervisor: Everth Larsson; Stig-Arne Mattsson
• organization: Engineering Logistics
• publishing date: 2007
• type: Thesis
• publication status: published
• subject: Transport Systems and Logistics
• pages: 179 pages
• ISBN: 978-91-976974-2-2
• language: English
• LU publication?: yes
• additional info: ISRN LUTMDN/TMTP--1046--SE
• id: 937f96ed-aa71-40c6-b645-ac70029e5334 (old id 636390)
• date added to LUP: 2016-04-04 10:07:39
• date last changed: 2018-11-21 20:56:54