Risk management in using VMI system : Comparative and explorative study of Chinese and Swedish household appliance companies

Abstract: Authors: Zhang Yaru & Tian Li Tutor: Petra Andersson Title: Risk management in using VMI system ----- Researching between Chinese and Swedish household appliance companies Background & problem discussion: Due to potential of supply chain management is enormous to improve productivity, customer service and cost reduction, Vendor Managed Inventory (VMI) is one of the supply chain management strategies, by improving the effectively of supply chain to get the competitive advantage for companies. In the Swedish and Chinese household appliance companies have a common agreement about using VMI system in order to reduce operating costs. Some articles believe VMI system has strong potential to be extended to the upstream nodes of the supply chain. However, in using VMI process, there are some risks such as capacity shortages, quality problems, breakdowns, ect. This thesis will be identified the risk of using VMI system in upstream of household appliance company and mitigate their risk problems. Research question: What are the differences of risk managing in using VMI system between Chinese and Swedish household appliance companies? RQ1: Which are the risk factors in Chinese and Swedish household appliance companies when using VMI system? RQ2: How do Swedish and Chinese household appliance companies manage the risk in using VMI? Purpose: The goal of this paper is to find out the risks of using VMI system and analyze the risk managing approaches that are utilized in Chinese and Swedish household appliance companies. By illustrating theoretical data about VMI system and supply chain risk management and empirical data of three Chinese and one Swedish household appliance companies, author would like to develop an analysis model from four dimensions of VMI system and basically supply chain risk management model to identify risk factors in using VMI system and figure out the difference of risk managing method between Chinese and Swedish household appliance companies when they use VMI system. Method: This thesis adopted the positivism perspective and the qualitative research. The survey was used in this thesis and focused on based on empirical data such as interviews to answer an open-ended “How” issues. In addition, the analysis is based on primary data from interview Swedish company as well as secondary data from books, articles and internet such as the Chinese company's website. Conclusions: The results of the study show that risk management in using VMI system in three Chinese household appliance companies (Haier Logistics Co., Ltd, Hisense Electric Co. and Midea Air-conditioning) and one Swedish household appliance company (Electrolux Laundry System Sweden AB) as well as based on theoretical and empirical data to create an analysis model, which is the integration between four dimensions of VMI system and the basic supply chain risk management model, to assist the analysis of research questions. Through analysis, authors identify seven risk factors: 1. Uncertain production lead time; 2. Long delivery lead time; 3. Confidence crisis; 4. Forecasting level is not high; 5. Less control the decision making; 6. Low information technology system and cooperation; 7. Lack of safety stock. Authors also illustrate the method of managing risk in using VMI system from four dimensions in Chinese and Swedish household appliance case companies.