VMI and its Effects on the Small and Medium-sized Supplier

Abstract: Background Today, collaboration between actors in a supply chain is often a necessity if a business wants to remain competitive. Moreover, efficient sharing of information is vital for success in this collaboration. One way of sharing demand and inventory information between the customer and supplier in a supply chain is by utilizing vendor managed inventory, VMI. The recent focus on VMI has produced a great number of articles on this subject, however, few of them give the whole picture of the VMI relationship. The VMI literature tends to have its focal point on the large customers in a supply chain, failing to cover the effects of VMI for the small and medium-sized (SME) supplier. Purpose The purpose of this thesis is to study VMI and its effects on the small and medium-sized supplier. The thesis will look at VMI from an electronic information sharing perspective. Realisation The study has a qualitative approach and is based on qualitative interviews conducted with representatives from three SME suppliers and one of their largest customers. In addition, interviews were conducted with VMI experts. Results The study shows that the prime motive for SME suppliers to enter into a VMI partnership is the demands of the customer. The fact that the SME supplier gains competitive advantage and gets access to information when joining a VMI collaboration are further reasons. For a successful implementation, the SME supplier must know his prerequisites, understand the goal and vision of the collaboration, participate in the design phase of the collaboration, and use the VMI information efficiently. In the long run, VMI normally leads to reductions in inventory, production, transportation and administrative costs for the SME supplier. Any absence of benefits can be due to the logistical knowledge being isolated to a few individuals. The VMI collaboration must bee seen as a strategic matter and a long term investment.