4.2 Agile Logistics
4.2.3 Vendor-Managed Inventory
Vendor-managed inventory (VMI), also called co-managed inventory (CMI), is an agreement in which monitoring, planning, and managing inventory is done by the
supplier in exchange with real-time information. In fact in VMI, retailer provides vendor with real time point of sale data and instead vendor takes the responsibility of monitoring, holding and managing inventory for retailer.
VMI was first implemented in the 1980s by WalMart and Procter & Gamble [35]; after that, many other companies from different industries used it. VMI’s most important features are short replenishment lead times and frequent and punc-tual deliveries that optimize production and transport scheduling[36].
In traditional systems, customers place orders on their suppliers. Although this seems logical, significant inadequacies magnified the need for efficient systems.
Conventional systems are mostly based on forecasting because suppliers have no advance warning of orders; as a result, a supplier must carry unnecessary safety stocks. However, the supplier often encounters unforeseen orders, which leads to frequent changes of their production and distribution schedules [3]. Thus, custo-mer’s real-time information substitutes for orders; instead, the supplier takes the responsibility for monitoring and managing the customer’s inventory.
VMI system has benefits for both supplier and customer. Benefits for customers are higher product availability and service level and diminished stock-out risk, while inventory levels and monitoring and managing costs are reduced significantly [35,37].
As suppliers have access to demand and inventory data, planning and scheduling of production, distribution, and replenishment can be done better [38], and ulti-mately the potential for stock outs is significantly reduced. VMI can also lead to the appropriate use of production capacity [35] and a reduction in the bullwhip effect[39,40].
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5 Logistics Parties
Seyed-Alireza Seyed-Alagheband
Department of Industrial Engineering, Amirkabir University of Technology, Tehran, Iran
Logistics outsourcing has attracted the attention of lots of industrialists in recent years. As a result, having long-term relationships with logistics parties seems to find its undeniable place in today’s growing extent of outsourcing affairs. Third-party logistics (3PL), in particular, has received substantial attention from logistics experts, leading to a great deal of research in this area. Furthermore, improved ver-sions of logistics parties, especially fourth parties, are growing with high speed.
Because of its importance, this chapter is dedicated to the introduction and general implications of logistics parties.
Logistics is basically the concept of how to deal with the movement and storage of materials or products that results in the highest consumer satisfaction [1]. The modern form of logistics concept dates back to the second half of the twentieth century. During the past several years, this field has obtained greater importance and has been theoretically and practically extended.
The logistics evolution requires that decision makers have a comprehensive and updated vision on the concept. The decision environment has become extensively complex with factors such as new management strategies and business models, global markets and sourcing, information technology (IT), new trends of customer satisfaction, and new transport-service options.
In most developed economies, the costs of logistics management are steadily growing, indicating an increasing proportion of the gross national product. Logistics costs have become an important part of the value of products, and logistics manage-ment is regarded as an important role in the international competitive market[2].
Logistics outsourcing is one of the issues that a firm has to consider about the efficiency and benefit outsourcing brings to the company. The decision to out-source logistics activities brings about the use of other companies to handle logis-tics affairs such as transportation and warehousing.
Logistics outsourcing is not a new trend. In the 1950s and 1960s, transportation and warehousing were commonly outsourced. This outsourcing was a pure com-modity purchase, and logistics as an activity was rarely a part of a company’s busi-ness strategy. By the 1970s, as companies began to emphasize cost reduction and improved productivity, they started to look for multicompetency providers for out-sourcing. The long-term relationship became more common, and service providers
Logistics Operations and Management. DOI:10.1016/B978-0-12-385202-1.00005-0
© 2011 Elsevier Inc. All rights reserved.
began to set up dedicated facilities for some of their clients. Those service provi-ders are called 3PLs. In the early 1980s, companies began to emphasize supply-chain optimization, but it was mostly restricted to isolated operations within their own organizations. Businesses focused on coordinating the movement of products within their facilities, integrating their financial system, ordering systems, and developing in-house inventory management. As a result, the range of services offered by logistics service providers (LSPs) also increased[3].
In the 1990s, by the advent of Internet and the emergence of global sourcing, tics industry introduced a new generation of LSPs called fourth- and fifth-party logis-tics (4PLs and 5PLs). Today, virtual logislogis-tics departments, called zero-party logislogis-tics, are able to handle most or all of the logistics activities using an integrated information chain between buyers and carriers.Figure 5.1demonstrates types of logistics parties.
Looking at the growth trend of logistics parties demonstrates the increasing atten-tion and investments of firms on logistics outsourcing. Therefore, this chapter sup-ports the decision to choose logistics activities to outsource, select suitable parties for partnership, and cooperate with logistics parties.
This chapter is organized as follows. Section 5.1 provides an overview and applications on the concept of 3PLs. In Section 5.2, new generations of logistics parties, including 4PL and 5PL, are investigated. Section 5.3provides an in-depth study on the concept of 3PLs.Section 5.4offers concluding remarks.