COMPARISON OF CO-MANAGED INVENTORY AND VENDOR-MANAGED INVENTORY FOR A DISTRIBUTION COMPANY

Abstract

Inventory is an important asset, whether it be in the form of raw material, work-in-process, finished goods, or supplies. Although inventory plays a significant role in keeping the business operating, it also represents one of the biggest operating costs for most companies.

Vendor-Managed Inventory (VMI) is a collaboration tool used by vendor and customer. It leads to the overall reduction of inventory level, as well as inventory cost, for an entire supply chain. Most of the time, VMI allows the customer to make an adjustment to the proposed order even though this adjustment might not be strictly necessary. The purpose of this research is to investigate the effect of order adjustment on inventory carrying cost.

Key findings on the positive contribution of no-order-adjustment are discussed. The savings, in terms of inventory carrying cost, are computed and compared between the two scenarios, VMI and Co-Managed Inventory. The final suggestion is that the company should consider operating VNI instead of Co-Managed Inventory in order to reduce inventory carrying cost.