Performance outcomes and success factors of vendor managed inventory (VMI)

Abstract

PurposeThe purpose of this paper is to seek to investigate performance outcomes of vendor managed inventory (VMI) from a buyer's perspective and enablers for its successful application.Design/methodology/approachStructural equation modelling through Partial Least Squares (PLS) is used to identify relationships between four enablers (information systems, information sharing, information quality, and relationship quality), perceived VMI success, and three outcomes (cost reductions, customer service, and supply chain control).FindingsBuyer‐perceived VMI success is impacted by the quality of the buyer‐supplier relationship, the quality of the IT‐system and the intensity of information sharing, but not by the actual quality of the information shared. Furthermore, VMI leads to three performance outcomes: higher customer service levels, improved supply chain control and, to a lesser extent, cost reduction.Research limitations/implicationsAlthough theory stipulates a positive impact of high quality information on the success of VMI, this study shows that the effect of information quality is limited in practice.Practical implicationsThe results of the survey show that purchasing managers who invest in the relationship with their suppliers and a good IT infrastructure are more likely to get better results from a VMI implementation. Furthermore, this paper shows that while most managers expect major cost reductions when implementing VMI, benefits primarily come from improved service levels.Originality/valueThe study provides empirical evidence of why VMI in practice does not achieve all the benefits claimed in theory.