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VMI implementation in Supply Chain often falls short of the promised benefits.
Many companies have gone ahead with Vendor Managed Inventory (VMI) for their input materials. It started in automobile industry and has now spread to many consumer and industrial goods as well.
When I discuss with their supply chain teams, most of them haven’t reaped the benefits targeted by them. Stockouts and inventory pileups continue to happen. Why is it so prevalent across most implementations?
The most important parameter setting in VMI is the Inventory Target, which is agreed with the vendor for each input material. Target is expected to cover maximum consumption during Replenishment Lead Time, adjusted for supply reliability.
Since the demand for finished goods varies, production schedule also gets revised to meet this demand. As a result, expected consumption during RLT also changes. Unless the Inventory Target is made equally dynamic, we’ll continue to face stockouts and pileups.
The two most common mistakes in VMI implementation are ‘Static Targets’ and ‘Lack of flexibility from vendors’.
We must solve these issues before embarking on VMI.