Wednesday, September 4, 2013

Maximizing efficiency: vendor managed inventory system

The key to sustain a superstore is to minimize its inventory while maintain it at a sufficient level. A superstore needs more space to place shelves with most products available. In the meanwhile, there should be adequate inventory to meet the variable customer demands. When I was reading the P&G case, I found the VMI system quite an efficient tool to manage supply and forecast demand. 

Supply chain is a network. Thus, it is necessary to involve supplier and customer in the net. Vendor can get information about customer's demand based on their aggregate POS data. The system can eliminate the obsolescence of historical data. Forecasting supply and demand, according to Nike's vice president Roland Wolfram, is a combination of art and technology. Solely based on historical data and algorithms will not bring success in demanding management. 

The VMI system seems to be more suitable for chain superstores, such as Wal-Mart, Ikea, Carrefour, etc. The reasons may include: first, these stores expand their business worldwide and cover a huge amount of customers, so they severely need a standardized forecasting tool; second, superstores usually are part of fast-consuming industry, which prefer shorter stock period and faster retailing speed, thus inventory control seems to be more necessary; third, customer demands of superstores are basically more variable.

Is VMI system also applicable for other business, such as ICT companies? To answer this question, factors like product design and operational model should also be taken into account. 

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