Optimising performance with distributor managed inventory in a FMCG supply chain

Abstract

This paper deals with the flow of information and material throughout a four-level Fast Moving Consumer Goods (FMCG) supply-chain. We conclude that under certain circumstances, the coordination of information and material flows along the supply chain should be done by the distributor, in an arrangement called Distributor Managed Inventory (DMI), a significant departure from the more traditional best practice concept of Vendor-Managed Inventory (VMI). We analyse a DMI model from both the strategic and the economic perspectives and also analyse its dynamic behaviour by using a numerical simulation model built for this specific purpose. Our dynamic analyses revealed that the DMI model is stable, and its simulation study showed, in terms of performance measures, that the analysed four-level supply chain could cope with increments of 20% of the normal demand level with 55% less inventory at the retail level and 33% less inventory at the distributor level than a reference VMI model.