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Keywords Inventory, Management effectiveness, Economic value added
Abstract Supplier managed inventory (SMI) and vendor managed inventory (VMI) have emerged as potential first steps towards successfully integrating activities and information across multiple firms. Despite the potential benefits, managers interested in these programs often cannot generate the "buy-in" among fellow management and executives or among those in the collaborative firm. The barriers stem from a misunderstanding of the concepts and an inability to demonstrate their potential effect on shareholder value across both firms. This paper draws a distinction between SMI and VMI and identifies where the approaches should be applied. A simultaneous economic value added (EVA) analysis from the customer and supplier perspectives is proposed as a means to demonstrate the effect on shareholder value, measure performance, and overcome the obstacles confronting implementation.
Introduction
There has been considerable interest in recent years among practitioners and researchers regarding how to make the dream of an integrated supply chain a reality. The idea of the entire supply chain acting in a coordinated, synchronous fashion to achieve higher levels of customer service for end customers at a lower total supply chain cost is inherently attractive. The desired outcomes not only enhance customer loyalty and margins, but also ensure the very survival of the firm and its supply chain partners in increasingly competitive markets. However, rendering the levels of cooperation and coordination necessary among multiple parties to garner these benefits has proven anything but simple.
Supplier managed inventory (SMI) and vendor managed inventory (VMI) are two distinct programs that can serve as significant first steps toward broader supply chain integration. These two programs, viewed by many to be synonymous, involve coordinated replenishment of materials inbound to manufacturers and finished goods outbound to merchandisers, respectively. While SMI and VMI have gained substantial interest among supply chain managers in recent years, convincing people within the company and with collaborative companies to engage in these initiatives has proven to be a monumental task for many. Lambert and Burduroglu (2000) note the difficulty faced by many managers when selling the value of logistics innovation. What seems to be lacking is a means by which the anticipated outcomes of significant, worthwhile change can be determined through measured, quantifiable burdens and benefits. The ability then...