VMI, a successful supply chain strategy? : Towards a VMI implementation at Kongsberg Automotive

Abstract: Abstract Kongsberg Automotive (KA), a first- and second-tier supplier to some of the largest automotive manufactures, has acknowledged the need to enhance their competitiveness and to collaborate within the supply chain. In order to do this, KA must improve the current business processes by establishing long term relationships with their suppliers. Today, KA face a high level of inventory, which has resulted substantial amount of tied up capital and inefficient processes. Therefore, this study will evaluate KA’s and three chosen suppliers’ possibilities and the effects that a vendor managed inventory (VMI) partnership will imply. VMI is a concept within supply chain management, where the supplier is fully responsible for managing the customer’s inventory level. To achieve this, the supplier is given access to sensitive information of the customer’s inventory level and demand and can, thereby, replenish the customer’s stock when needed. Although, some firms have embraced the concept with success, others have retreated forcefully. To fulfil the purpose of this study, we have done a broad literature review regarding VMI and performance measurements, as well as, organisational structures and information sharing in collaborative partnerships. Further, to better understand the implementation and effects of VMI, a benchmarking study was made at Volvo Powertrain in Skövde, an early VMI pioneer. In addition to the thorough study of KA’s processes, field visits were made at the suppliers’ to visualize their material and information flow in order to examine in what areas VMI would have an impact. The conclusion of this study is that a VMI strategy, in supplement with a consignment stock policy, is possible for KA. However, issues concerning responsibilities and ownership have become apparent throughout the study that needs to be agreed upon. Further, the study indicates that the benefits from a VMI implementation will be greater for KA, than for the suppliers. Specifically, a reduction in inventory value can be attained by KA, while the suppliers only can obtain minor improvements within the areas of inventory, production, and order processing. On the other hand, the suppliers will face drawbacks, mainly in their order processing, which will result in increased costs. However, we advice KA to further discuss and test the VMI and consignment stock strategy in a pilot project in order to find the right solution for the company and the suppliers.