Analysis of Logistics Performances of a VMI Programme in an FMCG Supply Chain

This paper investigates the cost advantages of a VMI (vendor-managed inventory) programme for different adoption rate levels in a given supply chain (SC). Further, it investigates classes of items that should be included in a VMI programme. A real SC has been considered in the study involving one manufacturer that distributes 80 items to 36 distribution centres (DCs) across Europe. Moreover, an ARENA 12.0 simulation modelling package has been used to simulate the SC model over a one-year period. The results of the study show that the cost advantage of a VMI programme, while evident for DCs, even those characterized by lower adoption rates, is not so for the manufacturer. For the manufacturer, the cost leverage of adopting VMI depends on the geographical vicinity of its DCs, the inclusion of items with low sales volumes, and the adoption rate levels. The shorter the distance between the DCs served in the VMI solution, the greater the reduction of the transportation cost for the manufacturer; otherwise, the manufacturer cannot utilize multi-dropping. The reduction in lost sales for the manufacturer significantly depends on the items included in VMI; those items with high order batching bring a greater cost advantage if included in VMI. Finally, the inventory reduction for the manufacturer can be significant only with higher adoption rates or critical mass.