Question

Question 8: VMI

a. What is VMI and why companies implement VMI?

b. Please compare and contrast cooperative VMI and predatory VMI in terms of buyer-vendor relationship characteristics and behavioral patters.

Answer 1

Solution:

a:

VMI, known as vendor-managed inventories is the system of the supply chain where the vendors manage the inventory of the retailers, wholesalers, or the customers of the vendors to manage the inventory levels according to the customer data available with the vendor. This helps in minimizing the inventory levels and provides greater control over the supply chain for the vendor allowing timely fulfillment of the inventories and more efficient management of the inventories across their distribution network. This what is known as vendor managed inventory systems. Companies are more interested in VMI because it provides greater control to the companies to manage the inventories up the value chain and reduce the wastage of inventories and be efficient in their efforts to manage and fulfill the inventory as the per-customer data and demand calculated by the companies, thus making the supply chain operations more efficient. These incentives make it lucrative for businesses to implement vendor-managed inventories.

b:

Cooperative VMI is the actual desired state of the inventory operations between the vendor and the buyer. It is the system where the contracts of the inventory systems are designed in a way to benefit both the buyers and the vendors. The exchange of information about demand, customer details is healthy and the buyers and vendors work in unison with appropriate sharing of resources to ensure that the customer demand is fulfilled appropriately. The vendors in cooperative VMI will help the buyers to market the products, help the buyers in setting up the campaigns about products, and also educate the buyers frequently about the product. This helps to strengthen the relationships between buyers and vendors and hence is beneficial for both the parties involved. This is the essence of the cooperative VMI.

To contrast, the predatory VMI is a system that is undesirable, especially for the buyers because the vendors generally do not share enough information with the buyers keeping the buyers in absolute shadow and also the vendors simply use the audience of the buyer's outlets to get their products showcased in their outlets. The vendors have multiple options of buyers available to work with them and the dependence on the buyers is lower hence there can be predatory practices from the vendors for the buyers. This generally happens when the vendors have a higher bargaining power over the buyers. However, this is not a prolonged solution to the inventory management and is not healthy for the supply chain performance for a long duration.