Vendor Managed Inventory versus Consignment Inventory

Consignment inventory usually involves the supplier, placing inventory at a customer’s location without getting rid of its ownership of the inventory. Since the owner retains the ownership of its products the customer does not pay until it is sold or used. However, before we examine how Fastenal can benefit from our proposed consignment program it is important to first examine some potential market of interest.

Schenck, J., McInerney, J. 1998. Applying vendor-managed inventory to the apparel industry. Automat. I.D. News 14(6) 36-38

In in traditional inventory management the buyer manages his own inventory. The buyer is responsible for maintaining stock levels to support his requirements. In VMI the supplier manages inventory for the buyer based on the information received from the buyer. But many industries avoid opting for VMI as it makes the dependable on its suppliers and leads to transfer of full control to them.

Also, by allowing suppliers manage inventory the number of intermediaries is reduced in the supply chain, increase common chain visibility and reduce overall inventory levels along it. Other terms for VMI are continued supply. However, the provider takes on more responsibility with this initiative, because it determines inventory levels and frequency of office to maintain continuous availability without depleted inventories and to implement VMI, must be provided to supplier sales data via Electronic Data Interchange (EDI), other electronic means, or via traditional human agents at

In order to fully and efficiently utilize our proposed vendor managed inventory system, we have performed extensive research of numerous hardware and software configurations. Among the many obvious requirements of the system are cost, scalability, compatibility, and ease of use. Some methods for consideration are outlined below.

VMI is an important co-operation initiative where the supplier (vendor) is authorised to manage inventories at customer locations (Waller et al. 1999, Cetinkaya and Lee 2000 cited in Ståhl Elevander, Sarpola and Mattsson). The purpose of this coordination between the supplier and the retailer is to increase sales and to increase profit and minimize inventory costs, being cautious with under stocking as well.

Following the supply chain review GSKs decided to change the planning management system and replenishment system. The purpose was to substitute the traditional CMI with Vendor Managed Inventory (VMI).

"Inventory" to many business owners is one of the more visible and tangible aspects of doing business. Raw materials, goods in process and finished goods all represent various forms of inventory. Each type represents money tied up until the inventory leaves the company as purchased products. Likewise, merchandise stocks in a retail store contribute to profits only when their sale puts money into the cash register.

Inventories are those asset items which are either used for the production of goods to be sold or used directly for the purpose of sales. It is a major portion of current assets and thus there is need to do careful investment in the same. Different kind of companies has different forms of inventory. For example; a company that is into direct selling of readymade goods will have only merchandise inventory in their accounts while the manufacturing companies will have inventory in three forms i.e. raw materials, work in progress and the final or finished product. The inventory at different stages plays different roles like the raw materials are that inventory which is used for the production of goods for selling purpose. Work in progress is that inventory which is in production, i.e. goods in production for sale and the final or finished product is that inventory which is ready for sale .

An inventory management system, inventory control and inventory accuracy are paramount to a mass production manufacturing facility, especially when multiple part types and multiple product types are being produced. Raw component inventory can account for millions of dollars of an organizations’ cash, which is not contributing to profitability until converted to a product and sold. Therefore, it is essential for an organization to have an inventory management system and an inventory control process to account for the value associated with each part and ultimately to return value to the operation.

An inventory control system is important for any business in ensuring quality control of consumer goods and as such, a good inventory system is essential. There are numerous inventory management systems, and examples include Systems Application Programming (SAP) System and JD Edwards inventory systems. SAP is an Enterprise Resource Planning (ERP) system that facilitates how businesses run their supply chains. SAP provides businesses and their supply network a quick access to supplier information, building a patent supply network that promotes a resourceful relationship for a more supple and receptive supply network. SAP supply-chain management (SCM) has several components that let the system to follow, to record and communicate inventory information among all partners in a supply chain network. These components include the SAP Inventory Control Hub for sharing inventory, auditing transactions, and logging communications for orientation through the internet. SAP also has a Vendor Management Inventory solution, which the vendor can use to manage supply concerns. SAP uses tailored automatic alerts with the involved parties having to agree upon the criteria to apply. SAP allows the transmission of these alerts through various communication channels such as cell phone, email, and pagers among others. Vendors can also use email or a web browser to update the SAP installation. On the other hand, SAP in-place system works on inventory levels

Due to the increasing globalization of markets, the level of competition has increased considerably; thus, leading to increased inventory management complexity. Indeed, complexity has several negative consequences including high operation costs, time delay, customer dissatisfaction, inventory shortage, excess inventory, lack of collaboration, cooperation, and integration among supply chain participants (Hudnurkar, Jakhar and Rathod). A supply chain comprises of several business partners who work together either directly or indirectly. The interaction between these parties is characterized by the flow of information, material, and finances. These flows may lead to complexity if there is a lack of information within the participants. Notably, inventory management complexity is closely related supply chain management costs. An increase in complexity is known to result in higher supply chain costs. As such, this paper evaluates some of the causes of inventory management s complexity and their possible remedies.

Title: Authors: Tutor: Date: Subject terms: Improving Inventory Management in Small Business: A Case Study Lining Bai and Ying Zhong

Reduced Overheads: Back office overheads will get reduced, lease rentals of machinery and factory space can be utilized for alternate revenue generation.

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