Analyzing the Factors for VMI Implementation: A Framework

Abstract

Vendor-managed inventory (VMI) is a collaborative strategy between a buyer and supplier to optimize the availability of products at minimal cost. Overall, inventory management cost plays a significant role in reducing supply chain cost. Specifically in the fast-moving consumer goods (FMCG) sector, inventory–turnover ratio needs to be very high to compete in the global market. Throughout the supply chain, VMI is used to cut inventory-related costs and keep inventory levels low. VMI helps organizations to reduce the inventory-associated costs by shifting the responsibility of managing and replenishing inventory to vendors. In this article, various critical factors of VMI are identified from the literature review and experts’ opinions. The interpretive structural modelling (ISM) approach has been employed to develop the structural relationship among different factors of VMI to improve the performance of the supply chain. The article also defines the levels of different factors for VMI on the basis of their driving or dependence power and their mutual relationships. These factors have been further categorized according to their driving and dependence power. The insight from this model will help supply chain managers in implementing VMI to improve the overall performance of the supply chain.