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Comparison betweenVMI, CMI, and CPFR

Student Name: Shaheen SardarCourse Name: Logistics ManagementDepartment of Industrial and Management EngineeringHanyang University, South Korea

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VMI, CMI, and CPFR

• VMI: Vendor-managed inventory

• CMI: Collaborative managed or co-managed inventory

• CPFR: Collaborative planning, forecasting and replenishment

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Alternatives Terms (for Vendor and Customer)

• Following alternatives terms are used for Vendor:SupplierSeller

• Following alternatives terms are used for Customer:Retailer Buyer

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Supply Chain Challenges

• Higher operating costs due to lower inventory turnovers.• Collaboration in retailers and suppliers functions.• Improved flow of materials and information.• Many products at many locations.• Optimized inventory at all stock points by SKU.• Increased responsiveness of the supply chain.• Higher demand volatility and variability.• Higher service levels.• Sustainability issues.• Relationship based on discounts.

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Common Goals (Vendor and Customer)

• Maximized profitability.• Product availability (always in stock).• Increased inventory turns and reduced level of inventories.• Reduced working capital.• Excellent customer service.• Optimized assortments.• Minimized markdowns.• Decreased product holding costs.• Visibility of inventory at individual store shelves.

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What is VMI?

• Customer provides the data and inventory policy.

• Supplier generates customer’s order, based on:Shared information on customer demand and

inventory. Mutually agreed/established conditions.

• Supplier refills the stock automatically, without the customer initiating purchase orders.

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What is CMI?

• Supplier generates customer’s order, based on:Shared information on inventory. Approval from customer.

• Supplier refills the stock with the approval and knowledge of the customer.

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What is CPFR?

• Order is generated based on internal information sharing between supplier and buyer to: Integrate their plans, forecasts, and delivery

schedules.Ensure a smooth flow of goods and services as

they are needed.

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Difference between VMI, CMI, and CPFR VMI CMI CPFRIn case, there is a lack of discipline in downstream supply chain

Poor estimates of inventory parameters by vendors

Inventory management parameters are set jointly

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Uncertainty of replenishment plan

Vendor’s replenishment proposal is valid

Vendor’s replenishment proposal is submitted to customer for validation

Sellers and buyers plan together to satisfy end customer’s needs

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Difference between VMI, CMI, and CPFR

VMI CMI CPFRDisturbance of production order

Customer follows the supplier’s production order

Customer can edit/adjust an order (more risk of disturbance of order)

Order is generated jointly

Visibility beyond the distribution center

Depends on information sharing level

Visibility increases to store shelf.

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Role of the customer

Information provider

•Inventory level and sales data are shared•Forecasting figures are invisible to supplier

Information sharing and joint inventory management

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Difference between VMI, CMI, and CPFR

VMI CMI CPFRProduct and process knowledge of vendor

High—better forecasting and efficient product flow

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Challenges •Customer’s loss of control•Inventory overstock

•Order modifications•Delayed replenishment •Data entry errors

Highest level of mutual trust, commitment, and willingness to invest

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How to use VMI and CMI: Example

• A customer and vendor are setting parameters for the stock of high-visibility jackets in a factory.

• Issued quantity over the last three year appears to be reasonably stable.

High visibility jackets Year 1 Year 2 Year 3

Quantity issued over the year 35 31 38

• VMI looks better to be implemented.

Total quantity = 35 + 31 + 38 = 104

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Example (continued)• Further analysis shows that the monthly issue

quantity can vary enormously.

Further questioning reveals that a party of visitors made one large withdrawal in April.

On induction of new jackets, a group of apprentices required another batch of jackets to be issued.

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

5 1 0 14 2 0 5 1 9 0 1 0

Total quantity = 38 Average monthly consumption = 38/12 = 3.17

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Example (continued)• Annual rate of usage is quite small.• Issue quantity can be highly variable.• It was decided to have a large buffer stock since a stockout could have

safety implications.• It was agreed to hold a buffer stock of 15 jackets.• Apart from visitors and apprentices, average monthly consumption is

approximately 2.• Minimum level was set 17, maximum 20.• Vendor checks the stock levels weekly and adds the stock level back up to

20.• Customer and vendor agree to monitor the situation carefully.

• CMI is implemented here.

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CPFR is

A shared process between vendor and retailer through:

• Integrated Systems.

• Extended level of Information Sharing.

• Coordinated planning and forecasting.

• Non stop feedback throughout execution.

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References

• Richards, G., and Grinsted, S. (2013). The Logistics and Supply Chain Toolkit: Over 90 Tools for Transport, Warehousing and Inventory Management. Kogan Page Publishers

• http://www.neogrid.com/en/solutions/demand-planning-replenishment/collaborative-managed-inventory-cmi

• http://www.journal.au.edu/journal_supplyChain/2012/june2012/04_ComparisonCo-ManagedInventory.pdf