Seçil Savaşaneril and Nesim Erkip. When should the Vendor Manage the Inventory: An Analysis of Manufacturer Benefits

Abstract. Vendor Managed Inventory (VMI) is a collaborative process between a supplier/manufacturer and a manufacturer/distributor/retailer, where the manufacturer (vendor) gains access to the demand and inventory information at the retailer and uses this information to “better” manage the retailer’s inventory. VMI has attracted a lot of attention due to its benefits such as fewer stock-outs, higher sales and lower inventory levels at the retailers and starting 1980's has been adopted by many supply chains. Vendor Managed Availability (VMA) is an improvement that exploits the advantages beyond VMI. We complement VMA by analyzing the benefits beyond information sharing and by clearly assessing the motivation for the manufacturer behind joining to such a program. Our main findings include, (i) the vendor managed system indeed brings benefits apart from information sharing, (ii) capacity management has significant impact on benefits, (iii) consigning stock may be more preferable than not consigning it, (iv) under the vendor managed system decreased dispatch frequencies may result in decreased inventory levels.