Implementation issues of a supplier-managed inventory program

Abstract

This thesis examines issues which must be resolved before implementing a Supplier- Managed Inventory (SMI) program. The research was conducted at a partner company of the Leaders for Manufacturing (LFM) program. The goal of the research was to lay the groundwork for a pilot SMI plan to be implemented in 2000. In manufacturing companies, there is a current focus on supply chain issues, with inventory reduction being one of the main goals of any supply chain initiative. In today's competitive business environment, inventory reduction can not be gained at the expense of customer service - the customers can take their business elsewhere. One method to reduce inventory and improve service levels is through an SMI program. Under SMI, the manufacturer's suppliers will hold, manage, and deliver materials to the manufacturer as needed to support production. The manufacturer will support the suppliers by giving them more accurate forecasts and real-time demand. SMI is a partnership that requires close cooperation between both parties. Everyone wins - the manufacturer decreases inventory costs and increases service levels, the supplier reduces safety stock levels and smothers out production. There are a number of issues to address before implementing a SMI program, ranging from information technology to new metrics for suppliers. While these issues will be explored, the thesis analyzes in-depth two key areas which must be understood in order to successfully implement an SMI program: Demand Forecasting and Inventory Stocking Levels.