Vendor managed inventory (VMI) - holding suppliers responsible for inventory levels in the warehouse - theoretically reduces logistics costs. Yet practice is sometimes recalcitrant, according to researcher Roel Post from the University of Groningen.
Roel Post is a PhD student involved in the Sustainable Logistics in Fresh Food research project. Post conducted research on the implementation of vendor managed inventory (VMI) in the Shared Fresh Center of Albert Heijn and XPO Logistics in Nieuwegein. In the Shared Fresh Center, Albert Heijn can draw directly from suppliers' inventory. This allows them to keep a lower safety stock. Products also move through the chain faster, resulting in better freshness for consumers. Post: "The idea behind VMI is that suppliers can plan their own production and transport activities better and more efficiently if they are given responsibility for stocks in the distribution centre. Much has been written about VMI in the scientific literature, but always from a strategic perspective. However, little is known about the impact of VMI on operations," says the University of Groningen researcher.
Implementation requires attention
Post paid attention to the operational implications in his study. Indeed, a successful implementation of VMI requires attention. "Just look at the diversity in suppliers supplying to the Shared Fresh Centre. Among them are large companies with logistics staff departments, but also small family businesses. Some suppliers only have items with a longer shelf life, while others supply items with an ultra-short shelf life of up to three days. These differences affect the required set-up and operation of VMI," Post states. "Incidentally, Albert Heijn has provided for this by offering suppliers three different levels of control."
The research, presented at the Material Handling Forum on 17 May, shows that VMI has hefty implications for goods receiving in the distribution centre. Retailers are used to carefully planning deliveries so that the flow of incoming goods is distributed as well as possible throughout the day. However, one of the success factors of VMI is that suppliers are given more freedom in scheduling deliveries. This can lead to more fluctuations and possibly spikes in goods receipts. Post: "So that requires good consultation between retailer, logistics provider and supplier to ensure an efficient receiving process without compromising too much on supplier freedom."
Trust crucial for optimal planning
Another important factor is trust. Suppliers must be able to trust that the logistics provider at the distribution centre will make the goods received available for order picking quickly enough. "If that trust is present, suppliers can plan optimally and additional security stocks are not needed," observes Post, who points out that suppliers need to put their best foot forward to actually translate the theoretical benefits of VMI into cost savings. "A frequently mentioned advantage is that suppliers can produce in larger batches. But suppliers sometimes also have to take into account activities they do for other customers."
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