Vendor Managed Inventory A Sawmills Potential Offering for Builders Merchants

Jarkko Erikshammar Jakob Wetterblad Johan Wallin Marcus Herder Thorbjörn Svensson

IM 31

Abstract 

Vendor managed inventory (VMI) is a frequently used method for and a widely discussed partnering initiatives for improving supply chain efficiency. VMI as a program has increased in popularity, especially in the grocery industry, where the supplier, reseller or distributor makes the main inventory replenishment decision for the consuming organization. 

The objective of implementing VMI programs is to decrease costs for inventory control and management, and create transparency; possibility to collaborative planning and replenishment and efficient consumer response. 

The theoretical framework presents the basics of VMI, what the effects are and what prerequisites for such a program demands. The theoretical framework is used for the model of analysis when analyzing the possibility to implement VMI from a sawmill perspective to one of their customer segments; builders merchants.  

This is a case study performed at a small and medium sized sawmill. The purpose of this study was to investigate the possibilities of theoretically implement VMI since the Swedish wood supply chain is in a need for new business models and services since the value refinement is too low.  

The current system for inventory management and replenishment is summarized and compared to a theoretical construction with VMI. The analysis shows total settlement days could increase with 50%. This has a positive effect on the net cash flow and the inventory turnover per year could almost double. Further does the relationship between Case Company and Builders merchant fulfill the requirements for implementing a VMI program, but there is reason to be aware of the potential pitfalls.