An analysis of manufacturer benefits under vendor-managed systems

Abstract

Vendor-Managed Inventory (VMI) has attracted a lot of attention due to its benefits such as fewer stock-outs, higher sales, and lower inventory levels at the retailers. Vendor-Managed Availability (VMA) is an improvement that exploits the advantages beyond VMI. This article analyzes the benefits beyond information sharing and assesses the motivation for the manufacturer (vendor) behind joining such a program. It is shown that such vendor-managed systems provide increased flexibility in manufacturer's operations and may bring additional benefits. An analysis is presented on how the system parameters affect the profitability and determine the conditions that make the vendor-managed system a viable strategy for the manufacturer.