Merits of Vendor Managed Inventory Essay Example | Topics and Well Written Essays - 2000 words

Merits of Vendor Managed Inventory - Essay Example Green Chilly faces a number of problems particularly in the stocking of items and staffing. These problems are usually caused by the country’s holiday season and the weather conditions. The two factors play a crucial role in the determination of customer preferences. The problems affecting the operations of Green Chilly can be addressed using a number of techniques. It is vital to consider the merits, demerits and risks of the techniques with respect to the problems facing Green Chilly. The four techniques that will be applied to the problems are vendor managed inventory, ABC analysis, supply scheduling and e-procurement. Activity based costing or ABC analysis is a supply chain method that allocates direct expenses and overhead to the essential activities of a business. The analysis enables businesses, managers and owners to define their areas of sales or manufacturing that can generate maximum profits. Inventories in Class A account for 80 percent of the revenue while inventories in Class B and C account for 15 and 5 percent of the revenues respectively. ABC analysis is a vital business tools that is effectively employed in the management of materials. Class A items are tightly controlled and managed using accurate records, while Class B items are less tightly controlled. However, they are managed using good records. Class C items are easy to control and manage using minimal records (Gudehus & Kotzab, 2012, p. 69). The approach provides a mechanism for the identification of items that have significant impacts on the overall inventory cost. It accomplishes this function while providing mechanisms for the identification of different groups of stock that need different controls and management. The approach provides improved controls of high priority inventory.