Vendor handled inventory in fmcg sector supply chain

Vendor Managed Inventory (VMI) is a planning and management system in which vendor is totally accountable for the replenishment of inventory based on well-timed point of deal information to the purchasers (shop) place. This concept helps increases the customer responsiveness by minimizing the source and demand distance thus giving the satisfaction to get rid of customer by increasing availability of the desired product when customer wishes it.

Supply chain companions must show their vision of demand, requirement and constraint to create the common objectives (Guillaume et al; 2008). Quality of buyer dealer trust and marriage, quality of ICT system and power of information sharing has positive impact on VMI implementation (Marloes et al; 2008). It coupled with VMI offers a clear view of inventory possessing location giving supplier better information for replenishment planning (Malla et al; 2007). Before implementation of VMI, examination of the level of uncertainty of customer demand is necessary as high doubt popular negatively affects the performance accomplished through VMI (Kazim Sari 2007). Upstream data transferred to supplier's i. e. current inventory level and exact sales forecast is the most crucial factor for the successful implementation of VMI (Astrid Vigtil, 2007). Benefits of VMI implementation be based upon contextual factors bordering the execution and dyadic intentions (Jongkyung et al; 2009). Implementing VMI is not single effort it could be beneficial if company vast effort is involved (George kuk, 2004). VMI supply chain has increased dynamic response which causes reduction in manufacturing on cost and transportation demand (S. M. Disney et al; 2003). VMI offers advantages to retailer as manufacturer stock more to lessen risk of stock out which in turn reduces retailer positioning and scarcity cost and raises its revenue (Brendra k et al; 2004).

Implementation of VMI in FMCG sector of Pakistan is a major task for the FMCG companies and the suppliers both. Maintaining of high quality error-free service in the dynamic and uncertain environment of Pakistan with insufficient ICT infrastructure (information and communication technology) is a huge pressure. Because of heterogeneous customer base complete VMI execution in this situation is not possible so FMCG companies need to handle its operation in both way i. e. for the both VMI and non VMI customers. For versatile and fast communication between FMCG manufacturers and retail chains proper ICT infrastructure is mandatory. So companies need to invest web-based information transfer systems like EDI (electronic data interchange). Adoption of VMI is not a fairly easy activity for companies as it requires heavy investment and determination of vendors that how much they are willing to share POS information. Before full and last implementation of VMI companies must need to learn the right merchants to be served and the factors that are acting as a barrier from retailer's aspect as the clear and fault free execution will have a great effect on future business performance results.

Objective of the paper is to determine the suppliers/manufacturer perceived aims, drivers, obstructions, performance effects for employing VMI in FMCG sector of Pakistan.

Organizational goals => Lead-time lowering, improvement in forecasting precision, improvement in customer support improvement in profit margin, improvement in rate of go back, increase sales, control of bullwhip result,

Strategic drivers => Competition, shorter product life pattern, global supply chain, corporate and business restructuring.

Obstacles => Inadequate organizational structure, insufficient suitable it infrastructure, poor decision-support tool, lack of trust and common understanding between supply chain partners, inner/external integration,

Performance outcomes => Effective development planning, effective forecasting, effective replenishment, effective inventory control and management, effective logistics and syndication management

This newspaper is sorted out in areas. Section 1 offers the launch; section 2 reveals the literature review on research procedures on VMI; section 3 is comprised of strategy: section 4 consist of data evaluation and section 5 pulls the conclusion about the findings.


Jan Holmstrom (1998) analyzed a single circumstance study to analyze the benefits associated with execution of SAP R/3 in VMI between vendor and its wholesaler. It really is discovered that administrative cost for seller product is reduced with reduced delivery cost which gives benefit to get rid of customer through low prices. Additionally it is discovered that demand variability, inventory level and order per delivery business lead time also greatly reduces which give competitive benefits to both seller and whole owner. It is suggested that full gain can be gained if vendor extends its quantity of customers.

Sila cetinkaya et al (2000) analyzed the inventory replenishment and delivery decision in VMI through analytical model. Supplier with arbitrary demand patterns and merchants dispersed in different geographical areas are taken into account. Manufacturer gets the freedom of retaining small sized purchases and dispatches it before consolidation size gathers. It really is discovered that inventory costs are reduced if the inventory and shipments decision optimally coordinated.

Susan cohen kulp (2002) examined the impact of interior information (sales and inventory) accuracy and its reliability on supply chain profits in vendor managed inventory. Theoretical types of two system traditional and VMI are analyzed which implies that the appropriate information helps company to forecast the buyer demand accurately which increases maker and retailer over-all income. Hypothesis was examined through study of 53 divisions of manufacturers in the F&CPG industry. Consequence shows that use of VMI increases with the depth and trustworthiness of retailer's internal information and inexpensive prices are decreased with the amount of VMI use. It is suggested that VMI will lead to higher supply chain gains if store and company both are prepared to share accurate information and utilize this information in taking inventory management decisions.

Terrance et al (2003) determined the distinction between supplier managed inventory (SMI) merchant maintained inventory (VMI) through theoretical framework. Economic value examination (EVA) can be used to determine the non financial benefits and burdens of VMI and SMI implementation and effect of VMI and SMI on enlargement of show holder value. it's advocated that EVA examination will help supervisor to identify the opportunities to improve the talk about holder value across both firms

S. M. Disney et al (2003) examined the result of VMI strategies on transport procedure and order batching activities. Three different scenarios traditional, internal loan consolidation and VMI are modeled through system dynamics methodology and analyzed through simulation. It had been discovered that VMI supply chain has improved strong response which causes reduction in creation on cost and transport demand. Travel cost keeping in VMI can be done for long term and short term and this cutting down is not effected by escapable and inescapable cost. This paper may help in growing the policy regarding VMI and supply chain (distribution, production scheduling etc. ).

S. M. Disney et al (2003) looked into the assessment between VMI and traditional significantly linked supply chain in producing bullwhip effect. Different equations are developed and simulation model testing was applied. Four variables as a way to obtain bullwhip; price modifications, rationing and video gaming, demand signal handling, and order batching, were analyzed in traditional and VMI source chain scenarios. It had been found that through VMI supply chain all the factors can be prevented through smartly designed system. Demand sign handling and order batching can only be eradicated through inventory possessing in traditional supply string. For future it's advocated that VMI would be of better profit if the distributor uses inventory and sales information in making development and inventory management decision process.

George kuk (2004) looked into the determinants and effects of VMI in digital industry through survey of 94 employees of 25 companies who fully integrated VMI. Four hypotheses were created having 3 unbiased variables: company size, amount of employees involved with VMI and type of logistic integration, 3 reliant parameters: information quality enhancement, service quality improvement and cost reduction. Through ANOVA tests it is examined that large level of employee participation, small size of firm and integrated logistics achieves more benefits associated with VMI. It's advocated that utilizing VMI is not solo effort it could be beneficial if company wide effort is included.

Brendra k et al (2004) looked into how the substitution brand competition gives benefit to store in VMI. Two level resource chain is taking having one dealer and 2 company of fighting substitutable brand and through research of mathematical model it is available that VMI offers benefits to merchant as compare to non VMI as credited to increase competition manufacturer stock more to reduce risk of stock out which reduces retailer keeping and lack cost and raises its earnings. For future research it's advocated to include inter store intra brand substitution competition.

Pamela danese (2006) determined the best way to use extended merchant supervised inventory (VMI) both upstream and downstream between various supply string partners to arrange the information and material flows. Case study analysis approach is utilized taking supply string network of leading pharmaceutical company GlaxoSmithKline (GSK). Through collected data it is shown that Information moves among the supply network customers, information systems and performance monitoring system are a few of the requisite of expanded VMI. In GSK Information stream is attained by EDI system which improved the service level, production capacity, and the inventory management. Central information system helps in production planning and order routine operations in up stream and downstream supply network. Performance monitoring system motivates and improves the performance and allows resource chain associates to overcome their reluctances to share information. It's advocated that collaborative planning, forecasting and replenishment (CPFR) should be studied into consider future research on extended VMI.

Yuliang Yao et al (2007) explored how resource chain parameters impact the cost keeping in VMI and sharing of this gain between buyer and supplier. Two level source chain having one supplier and single buyer modeled. Through analysis of model it is available that inventory cost lowering greatly depend on percentage of order cost of company to buyer and proportion of holding cost of provider to buyer. Buyer calls for all the benefits associated with inventory reduction whereas provider inventory level may increased which may lead to high logistic cost to supplier aspect. So it's recommended to have part payment layout between buyer and company to get VMI functioned in long run.

Malla et al (2007) looked into the impact of VMI model on organizations inventory associated cost. Case analysis of market innovator of tyre manufacturer has taken which has which has largest distribution network across India, USA and UK. Through simulation of model it is available that integration of information technology provide a clear picture of inventory keeping locations which helps provider in planning and replenishment of inventory across supply chain, which reduces bullwhip effect, basic safety stock and W. I. P and boosts customer service. Some of the limitations of the model are high primary investment cost and insufficient integration of systems.

Astrid Vigtil (2007) investigated the required information exchange in VMI with the support of five buyer-supplier match in Norwegian geographic. Semi-structured thorough interviews were conducted with the agent of different companies having logistic managerial position or similar. It was concluded through interviews that circulation of upstream data is more critical alternatively than downs-stream data. Visibility of current inventory status and sales forecast are the very first thing for suppliers and there is different kind of information needed is based upon operational mode of buyer in make to stock and make to order. In future it is implicated that for the bigger efficiency of VMI electric integration and programmed data transfer should be priorities as it facilitates supplier in planning of replenishment.

Kazim Sari (2007) reviewed the benefits of VMI in obtaining the increased performance through different levels of outside resource capacity, demand doubt, and lead time. Data were collected through simulation model; Crystal Ball, an MS Excel add-in. After retrieving data statistical test MANOVA is applied and it was figured high doubt in customer's demand has negative affect on the VMI performance. There is also a direct relationship between your production capacity of exterior supplier and performance of VMI. So long as the proportion between shop and supplier lead times remains continuous the performance level of VMI continue to be unchanged. For future implication it is recommended that before taking any decision relating VMI implementation it is necessary to execute cost-benefit evaluation if upstream information showing is poor or customer demand is highly uncertain.

Mikael Stahl Elvander et al (2007) suggested the framework for the numerous setups that could be arranged while establishing a VMI system. Semi-structured interviews were conducted from 15 company of Switzerland. Six framework were ready and tested against the focus group consisted of rep of nine different companies including suppliers and customers who already experienced executed VMI, in workshop. Through workshop it was deduce that we now have a number of different ways that VMI system can be configured, that will limit a supplier's possibility to employ the info made accessible through VMI. It is suggested that the problems related to operation and management varies in different VMI system construction. This should be studied into consideration and discover best maximum VMI system construction.

Atul B. Borade & Satish V. Bansod (2008) studied motives, drivers, road blocks and benefits associated with VMI techniques in e-environment. Key variables were compared between small and large Indian industry questionnaires were stuffed by 112 large companies and 86 small companies and hypothesis was analyzed through independent sample t-test. It was resulted that motives, individuals, hurdles and benefits are considerably different for small and large enterprises while implementing VMI. It had been discovered that the major goal for SMEs is profit improvement as well as for large companies is advanced customer service. Drivers for SMEs is competition and for large companies it is global source string. Obstacle in implementing VMI for SMEs is insufficient IT infrastructure as well as for large companies is insufficient trust between source chain partners. Objective for SMEs is revenue improvement as well as for large companies is better customer support. Benefits gain for SMEs is better forecasting and then for large companies is better logistic and distribution management. It is suggested that IT can gives companies advantages to improve end consumer value and reduce working expense as it offers the real time information of marketing conditions.

Guillaume Marques et al (2008) examined the included view of the VMI. Beyond your short term move system inventory replenishment, partners have to talk about their demand forecast, requirements and their limitations to repair middle/long term common objectives. In order to conduct the study 28 articles were review and it was concluded that there was no doubt about the true request of VMI in industry. What plainly is VMI and how do it be properly implement in supply chain is not clear. It cannot be justify whether VMI is a model, a process, a strategy, a relationship, a web link.

Juhwen Hwang, Su-Hwa Wu and Yu-Yen Huang (2008) examined the company performance development in term of total relevant cost/device. Three different models were suggested for single provider with heterogeneous merchants, the first is uncooperative model with self-employed inventory management system, second model was VMI model where supplier is accountable for inventory replenishment order cost and certain degree of holding cost and third model was VMI/CRE model, in which VMI is coupled with CRE (common replenishment epochs) strategy. Data was examined through Algorithm and numerical experimental design and it was figured VMI and VMI/CRE results are significant for distributor performance as compared with uncooperative model. For the future implication it's advocated that the company are required to provide bonuses such as price special discounts to pay the losses which can be bear by suppliers so that aligning ordering schedules with CRE.

Marloes J. T. Claassen et al (2008) examined the point of view of buyer in term of great benefit gained through VMI. Research model was designed having four key factors; quality of ICT system, quality of information, strength of information posting and romance quality. Sample of 64 Dutch buyer responded through email and model was tested through Partial A minimum of Square (PLS) technique. It was resulted that the grade of the buyer-supplier relation, quality of IT-system and depth of service level comes with an effect on buyer-perceived VMI benefits and it is not influenced by genuine quality of the info distributed. Furthermore three results of VMI performance are higher customer support level, useful control over source chain and cost reduction to some extent. It is proposed that the primary good thing about VMI execution is not cost lowering; it is high customer service level and supply chain control that can be obtained through better romantic relationship with supplier and productive IT infrastructure.

Jouni Kauremaa et al (2009) found out the types of great things about VMI program and its writing at the five levels (dealer vs. buyer). An exploratory multiple case study research technique was used. Quantitative and qualitative data were collected through semi-structured interview from five operational levels. It is concluded that for buyer and provider, VMI can result in strategic and operational benefit both which is depending on match motives and contextual factors bordering the given request. It is suggested that with the help of contextual factors VMI system can be designed with more accurate and perfect execution targets.

Kari Tanskanen et al (2009) looked into the challenges faced by the engineering industry at corporate level to manage logistics also to examine VMI as a remedy of logistics for small items. Three residential house building companies were elected positioned in Helsinki, quantitative and qualitative data were accumulated through web cameras' observations and interviews. Ratio research was applied on quantitative data and on the bases of effects it was concluded that VMI is the right solution for small item logistics for the structure companies. For future it is implicated to focus on other industries located in different geographical location.

Jongkyung Recreation area et al (2009) looked into a platform for integrative SRM (provider relation ship management) system by exploring wide-ranging approaches to overall SRM functions. Structure work includes five periods: Setting up of purchasing strategies, Collection of a supplier, Cooperation, supplier valuation and advancement and endowment of continuous improvement. Because of this previous studies related to SRM were analyzed and a construction for an integrative SRM system was suggested by which a case study was performed created on the systematic hierarchy treatment with a field survey. Results demonstrates the benefits of SRM can be acquired through the suggested framework and it is appropriate to real fields through application circumstance. It is recommended that this platform can help purchasing manager to investigate strategic top features of SRM before and through the SRM system procedure.

Francesco Zammori et al (2009) identified the standard construction of a seller maintained inventory (VMI) deal which is a foundation for the original reason of the contract. For this research an Italian plant was chosen as an ideal applicant because of complexity of its developing process and the data in the form of the information circulation and the complex specifics which can be critical before any operational setup are identified and discussed and formed as parameters for the reason of the primary body of the contract. It is discovered that VMI arrangement should be structured into segments insurance firms common and legal edges and public aspects contained in the annexes. This will likely increases the versatility of agreement As VMI romance progresses with the time. it is proposed that this flexible structure of VMI arrangement can be easily put in place by several professional fields.

Atul et al (2010) analyzed the difference in the practices of VMI in small and large Indian industry. Key variables were objective, individuals, obstacles and impact of VMI in large and small Indian sectors, questionnaires were filled up by 98 large companies and 63 small companies and hypothesis was examined through independent test t-test. It was resulted that objectives, strategic drivers, obstructions and affected operational areas are considerably different for small and large enterprises while adopting VMI. It had been also found that the major goals for implementing VMI are customer support and profit improvement. For future it is strongly recommended that the study should be perform on more parameters as well as for other physical (culture) areas.


Data were collected through principal source and research method of be of qualitative in mother nature as the aim of this newspaper is to explore the company perception and judgment about execution of VMI in FMCG companies working in Pakistan. Exploratory semi organized interviews have been conducted with the key person of FMCG companies employed in Pakistan. Then through the inductive reasoning observation will be analyzed and the idea is be made.

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