Integrating Transport into Supply Chains: Vendor Managed Inventory (VMI)

Despite the importance of transport within the supply chain, it has traditionally been treated as a separate function within businesses. More recently there has been increased recognition that transport needs to be integrated into the supply chain. This chapter considers vendor managed inventory, and demonstrates how it can be used to improve both transport and supply chain performance. With VMI, inventory across the supplier/customer interface (including transport) is managed holistically. Analysis is carried out using simulation and through a case study from the UK grocery sector. Among the benefits identified are control of the bullwhip effect, improved customer service levels, lower transport costs and improved vehicle fill. In addition, it is found that VMI is particularly effective during times of pressure within the supply chain.