Question

Question 1

i Explain the concept of vendor-managed inventory.

ii How does the bullwhip effect impact on the business of an organization?

iii Explain why reliability suffers as number of product components increases.

Answer 1

1)

Vendor managed inventory (VMI) is a concept wherein vendor maintains inventory on behalf of the buyer or customer basis the consumption or demand. The inventory information is shared by the buyer on regular basis with the supplier, who is responsible for replenishing the inventory timely and optimizing the ordering and holding cost for overall cost reduction. It thus helps to overcome bullwhip effect in system.

The benefits of VMI system are:

· It helps to ensure availability of material

· It increases inventory turnover rate

· It increase fill rate of the product

· It increases collaboration between buyer and supplier

· It helps to optimize the total cost

Hence, it is very essential for supply chain efficiency.