Beyond Information Sharing: An Empirical Analysis of Vendor-Managed Inventory

Beyond Information Sharing: An Empirical Analysis of Vendor-Managed Inventory

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Article ID: iaor201524734
Volume: 23
Issue: 5
Start Page Number: 817
End Page Number: 828
Publication Date: May 2014
Journal: Production and Operations Management
Authors: , ,
Keywords: supply & supply chains, management, information, decision, statistics: empirical
Abstract:

Using a unique, item‐level data set, we examined benefits to downstream firms (distributors) from the decision‐transfer component of vendor‐managed inventory (VMI), the feature that distinguishes VMI from other information‐sharing, collaborative supply chain programs. Our major findings are that the decision‐transfer component of VMI adds significant benefits to the downstream firm in terms of inventory and stockout reductions above and beyond information sharing, and that these two benefits may be realized at different times following VMI implementation; that is, inventory reduction, initially, may be the major benefit to distributors from VMI, while the benefits of stockout reduction may more likely be realized after the first year of implementation. In addition, VMI provides benefits to the upstream firm (manufacturer) by reducing the downstream firm's inventory variability, a likely contributor to the bullwhip effect. Based on our empirical analysis, the decision‐transfer component of VMI, on average, reduces inventory levels by 7%, stockouts by 31%, and inventory variability by 9%.

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