Extending vendor -managed inventory into alternate supply chains: A simulation analysis of costs and service levels

Intensifying global competition and the increasing role that technology has played in competition has created tremendous interest in managing relationships between businesses. Supply Chain Management (SCM) has used tools, such as vendor-managed inventory (VMI), along with changes in flows of information permitted by technology, to manage inter-business relationships and create competitive advantages. VMI has received little attention in research. VMI has been defined as a relationship where the supplier (vendor) monitored the customer\u27s demand and inventory levels and replenished that inventory with little or no action on the part of the customer. Many large organizations and their supply chains, such as Wal-Mart and Home Depot, have used VMI to create competitive advantages. Little research has investigated the use of VMI outside of large manufacturing or retailing supply chains. This study used simulation to examine the effects of implementing VMI in a unique supply chain, that of the agricultural service firm. Six Nebraska cooperatives were interviewed, representing several thousand customers, and fuel delivery data was collected. The interviews indicated both a need and a desire for more efficient delivery systems. These were, however, tempered by the risk adverse nature inherent to cooperatives. The data collected was used to construct a simulation model representing a conventional cooperative fuel delivery system. Experimental models, incorporating VMI, were created and statistically compared to the conventional model using the concept of order winners and qualifiers. The VMI model performed significantly better than the model representing existing methods. The study concluded that implementing VMI into an alternate supply chain improved the performance of the chain. In addition, a post-experimental model, incorporating both VMI and current practices, provided experimental evidence of the implementability of VMI in an alternate supply chain. This study provided experimental evidence that VMI could be successfully applied to supply chains that were structured differently from those previously investigated. In doing so, the study supported the feasibility of transferring other SCM tools to alternate supply chains