In 2008 and 2009, the United States suffered the greatest economic downturn since the Great Depression of the 1930s. Unemployment rose and market demand plummeted, with companies and manufacturers shrinking to decline, and many small retail businesses lacked the volume to generate enough sales and cash flow to survive. These small retail businesses could have used a supply chain management concept called shipping supplier-managed inventory (VMI) as a tool to help survive. Several small timber yards are able to withstand the current housing crisis by practicing some form of shipping VMI to increase inventory levels and improve cash flow. Retailers in other industries can benefit from this application, just as these building materials retailers have. Retailers can benefit from shipping VMI because it builds relationships within the supply chain, it can improve return on investment, and allows retailers to reduce inventory while maintaining the ability to meet consumer demand.
Relationship chain relationships are detrimental to the existence of a retail business, especially during an economic recession. VMI applications can facilitate and grow these relationships, ”companies that develop mutually beneficial competencies with their suppliers / customers – through a VMI application – and leverage these competencies serve a number of important business benefits (Duchessi & Chengalur-Smith, 2008, p. 123) “. These benefits may include a preferred status of the seller and, in turn, provide better prices, service and information sharing.
Return on investment (ROI) is an important measure for a business as a continuation. This measure includes the sale of operating assets or inventories of margins. Many of the topics that VMI dispatch includes are fast turning and low-margin items. Combining shipping with VMI is “the process of the supplier placing goods at a customer site without receiving payment until after the item has been used or sold (Evanko, 2010, p. 32)”. This is a just-in-time method of inventory management that increases inventory and therefore improves ROI.
The cash flow is detrimental to a retail business in an economic recession. Shipping VMI allows retailers to use cash flow to invest in operations rather than carry those dollars in stock. Other costs associated with building inventory include shrinkage and insurance costs that directly bind to inventory. In other words, the lower inventory levels, the less a business has to pay in insurance and the less it will lose due to pilferage, destruction and theft. Therefore, the savings on reduced inventory result in increased profits (Jacobs, Chase, & Aquilano, 2009, p. 546). The inventory is readily available without bearing the financial burden on the stock, so the retailer does not sacrifice to deliver a product to its customer and maintain a healthy level of service to the consumer.
Shipping VMI can allow small retail businesses to reap crucial benefits, especially during economic recessions. Although it has some drawbacks, such as initial startup costs and training of staff to manage and use the software needed to use VMI transmission. In addition, companies need to establish sufficient trust with suppliers before vendors consent to a VMI program. However, the advantages of a shipping VMI program outweigh the disadvantages. Retail companies can benefit from strategic partnerships with supply chain providers, and VMI programs can be a means of establishing and nurturing these relationships. These conditions are a necessity for weathering financial setbacks, making a business more efficient at managing profits and more efficient at providing service and product to its customers.
Duchessi, P., & Chengalur-Smith, I. (2008). Improving business performance: through vendor-controlled inventory applications. Communications Of The ACM, 51 (12), 121-127.
Evanko, P. (2010). Supplier controlled inventory. HVACR Distribution Business, 32-35.
Jacobs, R. F., Chase, R. B., & Aquilano, N. J. (2009). Operations & Supply Management (12th Edition). New York, New York: McGraw-Hill / Irwin.
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