Towards an Integrated Supply Chain trough Vendor-Managed Inventory : A case study of the spare parts distribution at an international manufacturing company

University essay from KTH/Industriell ekonomi och organisation (Inst.); KTH/Industriell ekonomi och organisation (Inst.)

Abstract:

During the last decade, research related to Supply Chain Management has got a great deal of attention. The focus has especially circulated around supply chain integration and centralisation due to the increasingly competitive global market. The aim of this thesis has been to investigate how the supply chain performance in international manufacturing companies could be improved. By having a qualitative approach, this thesis contributes to earlier conducted research by providing a holistic view on supply chain management. This is by the authors considered crucial to manage the complexity of supply chain management and supply chain change. The specific context examined in this thesis concerns the spare parts distribution of large international manufacturing companies. The methods used during the case study consisted of a thorough literature review, external interviews and workshops with experts within supply chain management and supply chain change, and several interviews with employees at different levels and functions at the focal company, Toyota Material Handling Europe. Two of the interviewed external experts were managers at the supply chain function at Volvo Construction Equipment and Ericsson. To answer the main research question, three sub-queries have been examined. The first one concerns what main areas of difficulty that can be identified in the current supply chain of the focal company and in international manufacturing companies in general. The second sub-query concerns which supply chain policies that could be used to solve identified areas of difficulty. Finally, the third sub-query concerns which prerequisites that could be identified to successfully manage change within supply chains.

The results imply that Information and InventoryManagement are the main supply chain related areas in need of improvements at the focal company, as well as in international manufacturing companies in general. Thereby supply chain performance could be improved if performance within these areas is enhanced. To solve these two identified areas of difficulty, four theoretical supply chain policies related to supply chain integration have been examined due to complexity, need of investments during an implementation, as well as each policy’s possibility to solve the identified areas of difficulty. The supply chain policy Vendor-Managed Inventory was considered the most appropriate policy for the focal company to implement. As a consequence, an evaluation of the focal company’s readiness to implement a Vendor-Managed Inventory policy was also conducted by using a supply chain readiness framework developed by Niranjan, Wagner and Nguyen (2012). Based on the literature review, including the theoretical evaluation of the appropriateness of implementing Vendor-Managed Inventory, together with the findings from the external expert interviews, the focal company is recommended to implement a Vendor-Managed Inventory strategy. However, the focal company is also recommended to see such an implementation as an opportunity to later investigate the possibility to also include large suppliers in the collaboration. This would increase the level of integration among supply chain members further and thereby secure the company has the possibility to receive the advantages associated with sharing information (including Points-of-Sales data) with all supply chain members.  

From a theoretical perspective the conclusion is that Vendor-Managed Inventory, with its focus on supply chain integration through collaboration and information sharing among supply chain members, is considered appropriate to implement when companies want to improve performance in one or all of these areas. Furthermore, the usage of a consignment stock agreement might be an appropriate complement to Vendor-Managed Inventory due to the international context. However, the authors suggest that international manufacturing companies should strive towards including large suppliers in the supply chain collaboration to increase performance further. Thereby they should move towards capabilities promoted in the supply chain policy Collaborative Planning, Forecasting and Replenishment, which advocate a higher level of integration than Vendor-Managed Inventory. Another main finding pinpoints the importance of a well-formulated and communicated vision in the beginning of a transformation, to manage supply chain change successfully. As a consequence, the authors of this thesis expanded the supply chain framework developed by Chopra and Meindl (2010) to also include vision. In addition, legal has been added as an important supply chain driver since it affects supply chain possibilities and decisions. The added parts are considered critical for the framework to be applicable in an international and rapidly changing business environment. Furthermore, the authors suggest the extended framework should be used to support companies evaluate the current and a desired future supply chain in accordance with examined change management literature.

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