Vendor Managed Inventory and Bullwhip effect

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Vendor Managed Inventory and Bullwhip Effect
The increased pace of technological development has had its effect on the supply chain management and traditional definitions of manufacturers, suppliers and customers are changing. Supply chain has become a network of different agents which cooperate to fulfill common goals. Vendor Managed Inventory (VMI) is a centralized link between suppliers and customers that enable faster and less complex transactions without creating individual lines of communication for every business relationship. It is a distribution channel operating system that monitors inventory at distributor/retailer level and manages at manufacturer/vendor level (Portes & Viera, 2006). For VMI to work effectively there has to be information sharing between members of supply chain. In this process the supplier takes decisions for buyer as to when replenishment has to be done and how much quantity has to be dispatched so that there are minimum chances of stock-out. Hence, the manufacturer or a reseller or distributor monitors inventory levels of buyer and periodically makes decisions for order quantities, shipping and timing. VMI takes away the problem of supply chain which is coordinating with different buyers, putting pressure on suppliers' performance for faster and accurate deliveries. Instead, suppliers are given responsibility and authority to manage the entire reordering process. There are many benefits which are reaped by organizations from VMI partnerships:
 Reduction in costs for the organization as there is better coordination resulting in improved production and transportation
 Improvement in service levels because of better coordination for replenishment of orders and deliveries across multiple suppliers
 Reduced chances of stock outs as there is better inventory ...