Vendor Managed Inventory
Background Information
Recent studies have revealed that many organizations are continuously integrating supply and demand into their businesses, thus reducing inventory investment. The most common program serving the company, such as Unilever Manufactures, is the Vendor Managed Inventory or VMI. This method entails that suppliers engaged in the management of organization products in the company warehouses. VMI can improve order fulfillment on goods hence attracting other retailers and manufacturers. The functionality of VMI is impressive because it allows the consumer to release its inventories to its distributing partners (Mello, 2017). This approach creates a notion that consumers trust suppliers’ ability to independently and efficiently maintain the stock. Realizing good productivity, low business cost, information improvement, and creating a competitive advantage means that VMI works well.
The Application of VMI Program
The utilization of the VMI program has a strong influence on various levels of Unilever operations. At the company’s retail level, VMI ensures that distributors oversee the clients’ finished products by looking at their activities. The distributor could have control over the inventory at the client’s distribution center (Khadiyala, 2019). This client may alert the supplier about its withdrawal, such as shipments, as well as on-hand inventory levels. The obtained data would help the supplier to create replenishment shipments to the client’s DCs and stores because it can help access the POS (Mello, 2017). Secondly, VMI strategy facilitates the management of inventory at the store level. The client would have to give point-of-sale information to the distributor as the firm prepares them for promotions and price fluctuations.
Unilever could use the VMI program at its manufacturing level by allowing the suppliers of the raw materials and components to be in charge of the company’s inventories. The company may use the load cells, which could give accurate inventory levels to maintain the plastic storage silos (Mello, 2017). Unilever may provide this manually obtained readings to the chemical distributor. More so, the firm could use the EDI to update other distributors on the daily inventories, despite being populated by the stock locator system. Unilever could employ an option with one of its corrugated box producers in which the firm obtains the production schedules and the on-hand inventories to help replenish each type of box.
When clients exist as manufactures, Unilever could give help to access data on inventory levels of raw materials like plastic in silos as well as stocking materials in component storage facilities. Either, the firm could give materials from storage into the production areas for utilization (Khadiyala, 2019). These offers also include the production timetable for goods that could consume the supplier-provided components or raw materials.
The retail clients could provide its suppliers with the supply center inventory levels from the distribution area and shipment to warehouses, and point-of-sale- statistics from its retail warehouses. The suppliers could use such data to strategize and deploy stock to the client’s station exemplified by the manufacturing factory, retail store, or supply center (Mello, 2017). The supplier’s sale prediction could utilize consumer data from the client’s factory, stock deployment plans, and point-of-sale information from the client’s retail warehouse to predict its operations (Khadiyala, 2019). This data would offer an accurate prediction of sales and operated organization due to its ability to reflect the usage rates or deals instead of estimating supplier consumption.
Advantages of Using VMI Program
The utilization of the VMI program could provide Unilever with many business gains. Firstly, this initiative eliminates the need for clients to replenish orders hence reducing or removing their ordering expenditure. This episode includes determining replenishing and real placement purchase orders as it releases against blanket orders. The company would only pay for the setting up of data transfers between suppliers and customers and the value-added network for EDI. When VMI gets rid of the replenishment orders, the firm could place smaller and more constant orders hence allowing clients to hold less amount of inventory as they continue maintaining excellent consumer services (Mello, 2017). This program can help to lower the order-batching cause of the bullwhip-based impact, which is simply the bulging of orders from client to supplier via the supply chain. The said order-batching issue happens when a client places an order for high quantities of goods, which deviates from the actual consumer demands.
VMI also helps to improve information hence assisting suppliers in accessing and utilizing the customer on-hand inventory and sales. Evidence has shown that suppliers VIM enables the supplier to accurately assess the actual sales of its gods and adjust to the new patterns of demands. This scenario exposes the company to the least vulnerabilities of overreacting to the client’s orders, which establishes the bullwhip effects (Mello, 2017). Next, the real-time information entered in the supplier prediction system offers current consumption statistics, which enables more precise demands forecasts as well as the through sales and Operations Planning, more timely information for supply planners.
VMI could also facilitate the better comprehension of client usage trends hence permitting a supplier to give an accurate prediction of production and oversee the inventory it contains in its factories. A decline in the stock that carries the cost could transmit to clients as the reduced prices (Mello, 2015). An integration of this feature with a consignment agreement could allow the suppliers to gain from the more significant economies of scale than when clients place orders on their own.
Conclusively, the application of VMI can also create a competitive advantage for the company, especially when the client gets a reward in the form of more business because the supplier had done a marvelous job. This situation emerges due to low costs and improved or quality services for the customers (Mello, 2015). However, the supplier needs to engage in regular meetings to review VMI-based performance. Here, VMI could create a competitive advantage if the supplier manages to reduce the order costs and inventory and, more so, improve services.
References
Khadiyala, B. (2019). A Mechanism Design Approach to Vendor Managed Inventory. Management Science, October, 22. https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2019.3297?journalCode=mnsc
Mello, J. (2015). “Internal and External Collaboration: The Keys to Demand-Supply Integration,” Foresight: The International Journal of Applied Forecasting, International Institute of Forecasters, June 11. https://ideas.repec.org/a/for/ijafaa/y2015i36p16-20.html
Mello, J. (2017). Principles, Benefits, and Pitfalls of Vendor-Managed Inventory. Econ Papers, April 12. https://econpapers.repec.org/article/forijafaa/y_3a2017_3ai_3a47_3ap_3a31-36.htm