Vendor managed inventory vs. order based fulfillment in a specialty chemical company

Abstract

In this thesis, an analysis of the existing order based fulfillment process for one product line of a specialty chemicals manufacturer is made and the potential benefits from the implementation of a vendor managed inventory (VMI) system are quantified. A single facility is considered and our focus is on the possible reductions in transportation effort. Initially, a set of criteria are defined for classifying which storage tanks will be served under the VMI system and which under the existing order based process. Subsequently, a cluster first-route second approach is implemented, where customer locations are first separated into clusters based on geographical proximity and routes are then designed for each of the clusters. A mathematical model is constructed that aids in the design of delivery routes that minimize the total number of delivery trips. Finally, the total transportation effort that would be required for replenishing the VMI and non-VMI tanks is estimated and a comparison is made with the current system. Key performance indicators are compared between the existing order based fulfillment process and the potential VMI implementation. Limitations of the proposed approach are discussed and directions for future research are highlighted.