Vendor managed inventory: preparation for an implementation
of a pilot project and guidance for an upcoming evaluation at
Volvo Trucks in Umea

Abstract: Today, collaboration between members in a supply chain is often a necessity
to stay competitive among other supply chains. In order to succeed with this
collaboration, information sharing is vital. One way of sharing information
and making it possible for a supplier to manage the replenishment of a
customer’s inventory is by utilizing Vendor Managed Inventory, VMI. This is
a concept that has been appealed by the cab producer Volvo Trucks in Umea.

The purpose with this thesis is to prepare for an implementation of a pilot
project of VMI at Volvo Trucks in Umea. Another purpose of this thesis is to
investigate which key performance indicators that should be included in an
upcoming evaluation of the project.

The implementation process were executed in an interplay between the
authors’, Volvo Powertrain, Volvo Information Technology, PipeChain and
Volvo Trucks in Umea. Parallel to the work with the implementation process
was a literature study carried out. This study made it possible for the
authors’ to analyze the material found in the literature review with the
actual implementation of VMI at Volvo Trucks in Umea. The method used to
identify key performance indicators, when evaluating VMI, began with a
literature review. Interviews were then held with two case companies, Volvo
Powertrain and Ericsson. Finally, findings from the interviews were compared
and analyzed with theories found in the literature review.

Conclusions of the thesis indicate that an implementation of VMI takes time.
Experiences from the implementation process also imply that substantial
resources must be available before and during implementing a resource
demanding pilot project, covered in this thesis. Key performance indicators
that especially should be inspected in an upcoming evaluation are:
administration cost, inventory cost and the size of the tied-up capital.
Volvo Trucks in Umea also recommends to carefully examining the work pattern
for involved material controllers during the pilot project. Finally, the
thesis states that the measurement of suppliers’ customer service should be
expressed in terms of service level rather as in delivery precision and
delivery reliability.