Evaluating vendor-managed inventory (VMI) in non-traditional environments using simulation

This study provided empirical evidence that sufficient economic benefits could be achieved with the use of a technology-enabled vendor-managed inventory (VMI) system in a unique chain such that a firm could justify spending the money necessary to create the infrastructure to support it. The models, while based on a specific type of business, were still generic enough that the results could be generalized to many types of highly distributed, variable demand delivery systems. The study compared the costs of inventory systems used in practice by rural farm cooperatives to possible technology-enabled systems. Fuel delivery data from two agricultural cooperatives in Nebraska provided the basis for this study. The data were used to construct demand distribution for discrete event simulation models of conventional cooperative fuel delivery systems. The results generated from this base model were compared to the operating costs of a technology-enabled system under a variety of VMI implementation alternatives. Performance was measured in inventory costs, delivery costs and stockouts. The study found that VMI alternatives outperformed traditional delivery methods and that the use of such technology could be economically justified in many logistics problems dealing with variable demand patterns through the cost savings created.