2005:253 civ master's thesis vendor managed inventory1025271/fulltext01.pdf · vendor managed...

2005:253 CIV

M A S T E R ' S T H E S I S

Vendor Managed InventoryEnlightening Benefits and Negative Effects of VMI

for Ikea and its Suppliers

Erica Henningsson Therese Lindén

Luleå University of Technology

MSc Programmes in Engineering

Department of Business Administration and Social SciencesDivision of Industrial Logistics

2005:253 CIV - ISSN: 1402-1617 - ISRN: LTU-EX--05/253--SE

PREFACE This master thesis is the final fraction of our university degree in Industrial and Management Engineering. It has been carried out in association with Ikea Trading Wood in Älmhult and the division of Industrial Logistics at Luleå University of Technology during the spring of 2005. We have found the topic of the thesis inspiring and interesting during the entire process. Ikea has been an interesting company to work with and we are grateful for the experience it has given us. We have been able to expand our knowledge about VMI due to this experience. We are thankful for this. This thesis had not been completed without the help from several people. First we would like to give our appreciation to Per Birgander at Ikea for his trust in us and for giving us the opportunity to write the thesis at Ikea. He has been a great support for us and has always had time to answer our questions. We also owe our mentor, Torbjörn Wiberg at LTU big thanks. He has given us important input and ideas during the process. We also want to thank our respondents at the benchmarking companies: Lena Breman at Volvo Powertrain, Per Larsson at ICA and Thomas Månsson at Procordia Food. Thank you for putting of time for our benchmarking study. Your knowledge and experience of VMI have been a great help and input to our research. We want to send a special thanks to Bo Johansson at Tibro Kontorsmöbler AB and to Paul Grenmyr at Bräntorp AB for your patience and willingness to help us collect important data. Further, would we like to thank all of the employees at Ikea Trading Wood in Älmhult. They have always taken time to help us and answered our questions which we are much grateful for. At last we would like to thank Oskar Mühlbach and Lukas Nyqvist for their loving support. Älmhult, 5 May 2005 ______________________ ______________________ Erica Henningsson Therese Lindén

SAMMANFATTNING Ikeas vision är att skapa en bättre vardag för de många människorna. Deras målsättning är att 2010 vara världens ledande heminredningsföretag. Detta ska uppnås genom en ökad försäljningsvolym och en minskning av försäljningspriset. För att kunna uppnå dessa mål måste Ikea utveckla en effektiv logistikkedja. Företaget menar att det bästa sättet att minska den relativa logistikkostnaden är att minska värdekedjans totala lagernivåer. Leverantörsstyrda lager (VMI) är en effektiv strategi att tillgå för att uppnå detta. VMI innebär att leverantören tar på sig ansvaret för att fylla på kundens lager. Detta är möjligt tack vare att kunden förser leverantören med löpande information om bland annat lagernivåer och efterfrågan på produkten. Ikea har i dagsläget implementerat sammanlagt 19 VMI-samarbeten. Medarbetarnas magkänsla är att dessa har resulterat i en ökad servicegrad och en minskning av värdekedjans totala lagernivåer. Företaget har dock inte undersökt om detta är en rättvisande bild av verkligheten. Examensarbetets syfte är därför att undersöka vilka fördelar och nackdelar som Ikea, och dess leverantörer, uppnår genom att implementera VMI. För att uppnå examensarbetets syfte har författarna genomfört en omfattande litteraturstudie. De har undersökt potentiella ekonomiska utvärderingsmetoder samt utvärderat hur ett företags logistikparametrar påverkas av en VMI implementering. Vidare har författarna genomfört en benchmarkingstudie om hur andra företag ekonomiskt har utvärderat sina VMI-samarbeten. Resultaten från litteraturstudien och benchmarkingstudien har därefter jämförts med utfallet från Ikeas VMI samarbeten med leverantörerna Bräntorp AB och Tibro Kontorsmöbler AB. Författarnas slutsats är att VMI ökar lönsamheten för Ikeas värdekedja. En av de främsta fördelarna ses i en ökad servicenivå. Vidare resulterar VMI även i en ökad produktivitet hos leverantören. Resultatet tyder dock också på att det föreligger en risk med att VMI ökar lagernivåerna på Ikeas distributionscentraler. Detta kan undvikas genom att Ikea följer uppsatta rutiner och tillsammans med leverantören definierar max- och miniminivåer på lagret.

ABSTRACT In 2000, Ikea formulated their direction for the new millennium. Their vision is to improve the everyday lives of the many people and in 2010 they have an objective to be the world’s leading home furnishing company. This will be achieved by an increase in sale and reduced sales price. In order to reach these targets Ikea must focus on the supply chain’s logistical efficiency. The company recognizes that the best way to cut logistical costs is to reduce stock in the supply chain. Vendor Managed Inventory (VMI) is an outstanding strategy to achieve this. VMI is a replenishment program where the supplier is given access to customer’s inventory level and demand. The supplier is fully responsible of managing the customer’s inventory levels and has the authority, and responsibility, to replenish the customer’s stock. Today, Ikea is involved in 19 VMI relationships. The company’s feeling is that by implementing VMI they have been able to increase the service level and decrease the supply chain’s inventory level. However, they have not done any investigations to confirm this idea. Hence, the purpose of the thesis is to investigate the benefits, and negative effects, that are to be obtained by Ikea, and its suppliers, after a successful implementation of VMI. In order to fulfil the purpose of the thesis the authors have done a broad literature review concerning both economic evaluation methods and parameters that may be affected in a VMI relationship. Further, they have benchmarked against other companies that have realized economic evaluations of their VMI relationship. The results from these studies have been compared to the outcome of Ikea’s VMI relationships with Bräntorp AB and Tibro Kontorsmöbler AB. The conclusion of the thesis is that Ikea’s supply chain will profit from VMI. One of the major benefits is an increase in service level. Another benefit is an increase in productivity at the suppliers. The research also indicates that there is a risk of an increase in inventory levels at Ikea’s distribution centers. However, this can be avoided if Ikea follows its routines and jointly with the supplier set maximum and minimum inventory levels.

TABLE OF CONTENTS 1 INTRODUCTION ....................................................................................1

1.1 Introduction of VMI ............................................................................ 1 1.2 The Background Issues ......................................................................... 2 1.3 Issue Discussion ................................................................................. 4 1.4 Purpose of the Thesis ........................................................................... 5 1.5 Research Questions.............................................................................. 5 1.6 Delimitations .................................................................................... 5 1.7 Structure of the Thesis .......................................................................... 6

2 PRESENTATION OF IKEA ......................................................................7 2.1 Introduction ...................................................................................... 7 2.2 Organization..................................................................................... 7 2.3 VMI at Ikea...................................................................................... 9

3 THEORETICAL FRAME OF REFERENCE.............................................. 11 3.1 The Total Cost Concept....................................................................... 11 3.2 Parameters Affected by VMI relationship................................................... 13 3.3 Chapter Summary.............................................................................. 18

4 METHOLOGICAL FRAMEWORK........................................................... 20 4.1 Research Purpose ............................................................................... 20 4.2 Research Approach ............................................................................. 21 4.3 Research Method................................................................................ 22 4.4 Research Strategy ............................................................................... 22 4.5 Data Collection................................................................................. 23 4.6 Analyze approach .............................................................................. 24 4.7 Quality Criteria ................................................................................ 24

5 BENCHMARKING STUDIES .................................................................. 29 5.1 Successful VMI Relationship in a Customer View ........................................ 29 5.2 Successful VMI Relationship in a Supplier View.......................................... 31 5.3 Unsuccessful VMI Relationship in a Customer View ..................................... 32

6 CASE STUDIES...................................................................................... 35 6.1 Outcome of VMI at Bräntorp AB ........................................................... 35 6.2 Outcome of VMI at Tibro Kontorsmöbler AB............................................. 41

7 ANALYZES OF THE CASE STUDIES ..................................................... 46 7.1 Service Level..................................................................................... 46 7.2 Inventory......................................................................................... 47 7.3 Administration.................................................................................. 49 7.4 Production ....................................................................................... 51 7.5 Transportation.................................................................................. 53 7.6 Effects of VMI to Ikea Stores ................................................................. 53 7.7 Chapter Summary.............................................................................. 54

8 DISCUSSION AND CONCLUSION......................................................... 57 8.1 Discussion ....................................................................................... 57 8.2 Conclusion of the Thesis ...................................................................... 58 8.3 Future Research................................................................................. 61

REFERENCES .............................................................................................. 62 APPENDIX A.................................................................................................1 APPENDIX B .................................................................................................2

APPENDIX C.................................................................................................3 APPENDIX D.................................................................................................4 APPENDIX E .................................................................................................5 TABLE OF FIGURES Figure 1.1 Ikea Logistical Staircase .................................................................................... 3 Figure 1.2 Structure of the Thesis ..................................................................................... 6 Figure 2.1. Model of the Ikea supply chain .......................................................................... 7 Figure 2.2 The VMI information transferring at Ikea.............................................................. 9 Figure 3.1 The Total Cost Concept after Lambert et al (1998) ................................................11 Figure 3.2 The costs of service, Christopher (1992)...............................................................12 Figure 3.3 Inventory throughout the logistic system, Lambert & Stock (1993)...............................12 Figure 3.4 Shifting strategy, Christopher (1992) ..................................................................13 Figure 3.5 VMI and forecast relation, Lapide (2001) ............................................................16 Figure 3.6 VMI consequences .........................................................................................18 Figure 3.7 The effect of VMI on logistic parameters ...............................................................19 Figure 5.1, Inventory follow up at Volvo Powertrain Skövde....................................................30 Figure 6.1 Graphic illustration of the increase in service level at Bräntorp .....................................36 Figure 6.2 Graphic illustration of the inventory decrease of Ädel klarlack at Bräntorp ......................37 Figure 6.3 Graphic illustration of the inventory decrease of Ädel mellanbrun at Bräntorp ..................38 Figure 6.4 Graphic illustration of the productivity increase at Bräntorp ........................................40 Figure 6.5 Graphic illustration of the increase in service level at Tibro Kontorsmöbler ......................42 Figure 7.1 Effected performance measurements at Bräntorp and Ikea...........................................55 Figure 7.2 Effected performance measurements at Tibro Kontorsmöbler and Ikea ............................56 Figure 8.1 Change in VMI parameters..............................................................................60

CHAPTER 1 INTRODUCTION

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1 INTRODUCTION The following chapter will start by introducing VMI in order to enlarge the reader’s knowledge and understanding about the issue of this thesis. Then the authors will present reasons for Ikea’s interests in VMI and the discussion further highlights areas for research. This will lead to the purpose of the thesis, four research questions and delimitations. Finally the authors will present the structure of the thesis.

1.1 Introduction of VMI Over the past decade more and more attention has been given to the concept of Supply Chain Management (SCM). This is an approach to view the supply chain as a whole rather than as a set of fragmented parts (van Weele, 2002). Mentzer, DeWitt, Keebler, Soonhoong, Nix, Smith and Zacharia (2001) define SCM as the systematic and strategic coordination of the traditional business functions. It also involves tactics across these functions within a company as well as across the supply chain. The purpose of SCM is to improve the long term performance of each firm as well as the supply chain as a whole. Mentzer et al (2001) also imply that all members of a supply chain must have the same objectives and same focus in serving the customers. Companies must understand the implications of managing the upstream and downstream flows of products, services, finances and information across the supply chain. A company that only focuses on the consequences in one direction can never be supply chain orientated. (ibid) In a supply chain, it is important that all members are aware of the bullwhip effect. The effect arises when a firm’s demand forecast is based on another firm’s forecast and is due to the uncertainty in the first firm’s accuracy. This will lead to a higher volatility in forecast upstream the supply chain and will cause orders to fluctuate more than the actual demand of products. (Tayur, Ganeshan and Magazine, 2000) Hence, the bullwhip effect makes the demand look variable and unpredictable even when end customer demand is stabile (Småros et al, 2003). In the long run, the bullwhip effect will make the supply chain suffer from unnecessary inventory cost in form of increased safety stock. (Tayur et al, 2000) According to Disney & Towill (2003) Vendor Managed Inventory (VMI) is especially interesting in a supply chain where the bullwhip effect is an issue. VMI is a strategy to conduct SCM and implies that the supplier is given full responsibility of managing the customer’s inventory level. (Disney & Towill, 2003). Småros, Lehtonen, Appelqvist and Holmström, (2003) define VMI as an automatic replenishment program where the supplier is given access to the customer’s inventory levels and demand. The supplier is fully responsible of managing the customer’s inventory level and has the authority and responsibility to replenish the customer’s stock according to jointly agreed levels. (ibid)


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In research, there is a disagreement about which partner that should be the owner of the inventory. According to Mattsson (1999) VMI only implies that the supplier is given responsibility of managing the administration of the inventory and any part of the supplier and customer may own the stock. Hines, Lamming, Jones, Cousins and Rich (2000) and Blatherwick (1998) imply that the partner that is most able and in the best position to manage the inventory levels should be in control of it. This does not necessarily mean the strongest part. However, Krajewski & Ritzman (2002) propose that the supplier should be the owner of the stock and the customer only pays for the goods that he makes use of. Supply chains often suffer from the dilemma of conflicting performance measures, i.e. a low level of inventory is a contradiction to high service level. By using VMI the companies in the supply chain can solve this problem. (Waller, Johnson and Davis, 1999) Other benefits that are to be obtained in a successful VMI relationship differ between the supplier and customer. The supplier will face a more stabile demand from the customer and an increase in information flow. This will lead to a gain in flexibility and improve the supplier’s ability to plan his production. The customer, on the other hand, will obtain a lower inventory level, reduced administration costs, an increase in service level and a reduced risk for stock outs. In the long run VMI will lead to a higher turnover rate for the entire supply chain. (Hines et al, 2000) It is important that the partners in a VMI relationship have trust in each other and in the transparent information that is shared between the companies. Waller et al (1999) recognizes trust to be the one of the most critical parameters in a successful VMI relationship. He means that if both partners can not see what is in it for them and do not trust the accuracy of the transparent information, the VMI relationship can never gain benefits for the supply chain. According to Riddals, Icasati-Johansson, Axtell, Bennett and Clegg (2003), trust is created by good communication.

1.2 The Background Issues In 2000, Ikea formulated their direction for the new millennium. Their vision is to improve the everyday lives of the many people and in 2010 they have an objective to be the world’s leading home furnishing company. This will be achieved by an increase in sales volume and a decrease in sales price. In 2010, Ikea has a motive to reduce their sales prices to at least 20 percent below the prices of year 2000. At the same time they also want an increase in volume by 10 percent per year on an overall level, based on the number of existing Ikea stores in year 2000. The increase in volume based on the existing stores together with the planed expansion of stores, will be about 50 percent. To be able to reach these targets, Ikea must focus on developing a logistical efficiency in the supply chain. Therefore, they need to focus on a stabile service level at all times in all stores, with reduced relative logistical costs. (Dahlvig, 2000) Ikea recognizes that the best way to cut logistical cost is to reduce stock in the supply chain. In theory, VMI is an outstanding strategy to do this. Today, Ikea is using many different types of distribution systems; call off, order point distribution center (OPDC),


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transit, direct delivery (DD) and VMI. (For a description of the distribution systems see appendix A). According to the overall strategy, the company requires to cut logistical costs and have therefore developed a strategy on how to do this when it comes to distribution (figure 1.1 Ikeas Logistical Staircase). Ikeas vision is to establish as many VMI relationships as possible. (Operating Manager, Trading Area Wood)

Figure 1.1 Ikea Logistical Staircase

Ikea Trading AB is divided into 16 different areas worldwide. Trading Area Wood is situated in Älmhult, Sweden and is responsible for the purchase of goods from the suppliers in Sweden, Denmark, Belarus and the Baltic states. Today, Ikea has a wide range of products and large volumes of each article are bought each year. Along with this a great number of products are replaced each year. Hence, Ikea has a load of administrational work that takes up a great deal of the co-workers’ time. (Operating Manager, Trading Area Wood) Ikea believes that the supplier is more able and in a better position to manage and administrate the purchase. The company has such a wide range of products that it is not reasonable to think that the employees can keep all of Ikea’s suppliers in focus. The supplier, on the other hand, is in a much better position to focus on his own products. He is well aware of both the demand and production of the articles. This is one of the reasons to why Ikea decided to implement its first VMI relationship in 1996. (ibid) Another important reason for implementing VMI is the competitive bidding process that involves the purchase of products at Ikea. Trading areas are all competitors in the search for new suppliers. When a new product is launched, each trading area presents their lowest possible customer price. The one with the lowest price will be responsible for the procurement of the article. (Operating Manager, Trading Area Wood) Today, it is difficult for Trading Area Wood to compete with trading areas in low cost countries such as Poland, India and China. These countries have a competitive advantage when it comes to labour costs. This affects the Swedish division’s ability to

Ikea Logistical Staircase

OPDC

Call Off

DD, VMI, Transit

Call Off

Fix

?


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compete. One way to fight this loop sided competition is to lower the logistical cost and achieve high quality products. VMI is one strategy to accomplish this. (ibid) When it comes to the future, Ikea consider VMI to be one of its major distribution- and ordering systems. The employees’ feeling is, that by implementing VMI, the company can face higher service level, decreased inventory levels and a more stabile flow of products. However, they have not done any economic evaluation of VMI. Hence, they have no proof that these benefits are realized. (Operating Manager Trading Area Wood)

1.3 Issue Discussion The nature of business enterprise is changing. Today’s business is increasingly “boundary less” and the idea of extended enterprise is changing our thinking on how organizations shall compete and how value chains need to act as synchronized networks. A key to success in SCM is the information system. Today, information systems enable time and space to be collapsed due to the ability to link a customer directly to its supplier. This enables the supplier to react, sometimes in real time, to changes in the market. Information system has always been important to efficient management of logistics but now, enabled by technology, it is providing the driving force for SCM. (Christopher, 2004) The authors of this thesis recognize VMI to be a possible efficient strategy to make use of information systems and they acknowledge the issue to be of high significance to investigate. According to Lambert, Stock and Ellram (1998), companies must focus on the total cost for the entire supply chain and not on the individual company’s costs. This in order to be a competitive supply chain. Companies must be aware of that a cost reduction in one area of the supply chain can result in a cost increase in another area (ibid). Along with Lambert et al, the authors highlight that it is of great importance that Ikea is aware of how VMI affects the inside organization of Ikea as well as the entire supply chain. All functions within Ikea must try to reduce the total cost of the supply chain and not focus on their individual function costs. Today, Ikea does not know if VMI has any real benefits for Ikea and its supply chain. Ikea has a feeling that VMI brings benefits to both Ikea and its suppliers, but they have no verification. On the contrary, Bergman & Klefsjö (2001) imply that decisions can not be made by assumptions or feelings. Decisions must be based on facts. Until recent day, Ikea has not done any evaluation on how VMI affects the company or its suppliers. Furthermore, the total cost for the supply chain has not yet been investigated or estimated by Ikea. With the globalization of the markets in mind, an evaluation on how VMI affects Ikea would be in place. It is in the interest of Ikea to present the best conditions for high quality relationship. In addition, the authors recommend Ikea to investigate this issue before they establish further VMI relationships. The authors also argue that Ikea must consider what kind of conditions that is important for a successful VMI relationship. Some suppliers have indicated that they


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insist all of their production to be included in the VMI relationship. Therefore, an issue to discuss and evaluate is if this type of relationship will be more profitable to the supply chain. Another issue of interest is if the VMI supplier shall deliver directly to the Ikea stores or to distribution centers. As it is today, all VMI transportations in Sweden dispatch at the distribution centers. However, in Germany the VMI suppliers deliver directly to the Ikea stores. Ikea Trading Area Wood is uncertain if this delivery solution is possible to conduct by their suppliers and wants to investigate the benefits further. The authors find the above issue discussion trigging and interesting for additional research.

1.4 Purpose of the Thesis The background and discussion of the issues generates the purpose of the thesis. It is to investigate the benefits, and negative effects, that are to be obtained by Ikea, and its suppliers, after an implementation of Vendor Managed Inventory (VMI).

1.5 Research Questions The purpose of the thesis is divided into the following research questions:

1. How will the supply chain’s logistic parameters be affected by VMI relationships?

2. Will there be any benefits in the supplier’s production after a successful implementation of VMI?

3. Shall all production, or just parts of the production, be a part of the VMI relationship?

4. Shall the VMI transportations go to the distribution centers, or directly to the stores, in order to maximize benefits?

1.6 Delimitations Due to time limitations, the authors will only focus on the previous discussed aspects of VMI. They consider themselves to have done a thorough review of the existing research of VMI. However, they acknowledge the fact that there is always a risk of overseeing important aspects in the process. Further delimitations made by the authors are that they will only pay attention to two present Swedish VMI relationships at Ikea. The suppliers that will be investigated are Bräntorp AB and Tibro Kontorsmöbler AB. The choice of suppliers is due to the fact that these are the only present VMI relationships at Trading Area Wood. The authors will only evaluate the change in service level at the distribution centers. They will not evaluate the effects of VMI on the on-shelf availability at the stores. This due to the fact that currently the Ikea stores are not included in the VMI process at Ikea. Further, the authors will not compare the VMI ordering process to others ordering processes at Ikea due to time limitations.


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1.7 Structure of the Thesis To visualize the research process the authors present the structure of the thesis in figure 1.2 Structure of the Thesis.

Figure 1.2 Structure of the Thesis

Introduction

Presentation of Ikea

Theoretical Frame of Reference

Methological Framework

Benchmarking Studies

Case Studies

Analyzes of the Case Studies

Discussion and Conclusion

CHAPTER 2 PRESENTATION OF IKEA

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2 PRESENTATION OF IKEA This chapter will introduce the organization of Ikea for the reader. It will start by an introduction of the history of Ikea. Then the authors will present Ikea’s organization. The presentation consists of four different divisions of Ikea that are relevant for this thesis. The chapter ends by a description of the VMI process at Ikea.

2.1 Introduction In 1943, Ingvar Kamprad founded Ikea. The Ikea name stands for Ingvar Kamprad Elmtaryd Agunnaryd. Elmtaryd is the name of the farm where Kamprad grew up and Agunnaryd is a small village nearby the farm. Since the start in 1943 the company has grown to be one of the largest furniture retailers in the world. In 2004, Ikea had 202 stores in 37 countries and 84,000 employees. The same year, 310 million people visited the stores and 131 million copies of the catalogue were printed. (Ikea Intranet) The Ikea vision is: “to create a better everyday life for the many people”. To be able to do this their business idea is: “to offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them”. (ibid)

2.2 Organization Ikea is divided into several different companies and divisions worldwide. The divisions listed below are the most important ones for this thesis. Figure 2.1, Model of the Ikea supply chain, describes where in the supply chain each company/division is to be found. (Ikea Intranet)

Figure 2.1. Model of the Ikea supply chain

Ikea Trading Ikea of Sweden

Ikea stores Distribution Center


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2.2.1 Ikea of Sweden Ikea of Sweden (IoS) is the core of Ikea and is situated in Älmhult, Sweden. At IoS all of Ikea’s products are designed and developed. In order to attain an overall picture of the supply chain, IoS leads the supplying process at Ikea. This process consists of forecasting future demand, ordering, producing and delivering the offer to the sale floor and to the customer. The process must secure that the customer promises of lowest price, availability and quality are fulfilled. IoS has the top responsibility of sourcing and contracting suppliers. (Supply Planner, Ikea of Sweden)

2.2.2 Ikea Trading Ikea Trading is responsible for all trading done by Ikea. Ikea Trading is divided into 16 different trading areas worldwide. Ikea Trading works jointly with 1,500 suppliers in 55 countries. (Ikea Intranet) This thesis will focus on Trading Area Wood, which is situated in Älmhult. Each trading area is responsible for a geographic area and the suppliers within that area. These trading areas are in charge for the daily contact with the suppliers. They secure that the supplier is able to produce the products in terms of the best quality and function to the lowest price. The trading areas are competitors to each other in the search of suppliers. When a new product is launched by Ikea, all sixteen trading areas present their lowest possible customer price for the product. This is called competitive bidding. The trading area that offers the lowest customer price will then be responsible to contract one of it’s suppliers to produce the product to the set price. This way of working enables the different trading areas always to be keen on cutting costs and delivering the lowest possible price to the end customer. (Operating Manager, Trading Area Wood) Each trading area has a number of teams consisting of one business support, one technician and one purchaser. These three functions work together with the supplier in order to produce the best products for the customer. It is of great importance for both Ikea and the supplier to have a functioning communication. (ibid)

2.2.3 Distribution Centers Ikea has 28 distribution centers worldwide. These are responsible for providing the Ikea stores with its products. The distribution centers stock all of Ikea’s products. The strategies for the distribution centers are to enable a high service level to the Ikea stores simultaneously with low transportation costs. The distribution centers shall support the stores to shorten the lead times and make them stabile. A good communication between the distribution centers and the Ikea stores are of great importance. This is in order to distribute the required volume of products at the right time to the right store. Different transportation solutions are developed by the distribution centers in order to lower the costs for the whole supply chain. (Business Support Group Manager, Distribution Service North)


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2.2.4 Ikea Stores Ikea has 202 stores worldwide. The focus for each store is to sell their products. By having this focus, the stores can fully concentrate on the company’s core business; selling furniture. (Ikea Intranet)

2.3 VMI at Ikea Ikea implemented its first VMI relationship in 1996 and today Ikea is involved in 19 relationships. Since the VMI order proposals are made by the supplier themselves, and not by the employees at Ikea, the ordering process of VMI is different from Ikeas traditional ordering process. (Operating Manager, Trading Area Wood) Figure 2.2 describes the transferring of VMI information at Ikea and is further discussed below.

Figure 2.2 The VMI information transferring at Ikea Supplier The supplier is in charge of making the order proposals. A proposed order is sent to Ikea’s database, which will automatically confirm the order proposal into an actual order. The proposed order is based on the information that is provided by Ikea. In the following sections the authors will present which division that provide which information to the supplier. All of the information is sent to the supplier once a day in form of a VMI file (appendix B).

Supplier

Database

Store

Distribution center

Ikea of Sweden

Ikea Trading AB


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The supplier is also in charge of booking the transportations from the supplier to the distribution centers. However, the scheduling of the carriers is done by Ikea’s distribution service at the distribution centers. As soon as the cargo is on the carrier the ownership of the goods becomes Ikea’s. (Operating Manager, Trading Area Wood) Ikea Store The Ikea stores are focused on selling the products. Therefore, the information that is send by stores is their level of inventory and how many products they have sold or products that are booked by customers. (Operating Manager, Trading Area Wood) Ikea of Sweden This function is in charge of forecasting future demand of the products. Hence, the information they will send to the database is the forecast. IoS is also responsible for setting correct maximum and minimum level of inventory at the distribution centers. (Supply Planner, Ikea of Sweden) Distribution Center VMI productions are transported to different distribution centers where they are dispatched to each store. The distribution service is responsible for keeping track of the inventory level at the distribution centers; hence information about their inventory level is send to the database. (Business Support Group Manager, Distribution Service North) Ikea Trading AB Ikea Trading AB has a control function in the VMI process. Their task is to make sure that the supplier fulfills his obligations. If the supplier notices any problems he will contact his personal Business Support at Ikea, and they will together solve the issue. (Operating Manager, Trading Area Wood)

CHAPTER 3 THEORETICAL FRAME OF REFERENCE

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3 THEORETICAL FRAME OF REFERENCE In this chapter the authors will present the most important findings from the literature study. They begin by describing the total cost concept and logistic parameters. Then they present literature that clarifies the effects of VMI on the parameters. The chapter ends with a summary of the consequences of VMI and which performance measurements that need to be investigated.

3.1 The Total Cost Concept Logistics shall be viewed as an integrated system. At a certain service level, companies must focus on minimizing the total cost of logistics rather than try to reduce the cost of each activity. The total cost concept is a useful tool for effective management of the logistics process. The model shows that cost reduction in one area can cause an increase in cost in another area. (Lambert et al, 1998) (See figure 3.1 the Total Cost Concept) The elements of the total cost concept will be defined in the following sections.

Figure 3.1 The Total Cost Concept after Lambert et al (1998) Service Level Service level is defined as when the right product, in the right amount, at right time to the right price is delivered to the customer. (Christopher, 1992) Service level consists of three elements:

• Pre-transaction elements: corporate policies such as written statements of service policy

• Transaction elements: variables directly involved in performing the physical distribution

• Post-transaction elements: procedures of customer complaints and product replacement (ibid)


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According to Christopher (1992) the relationship between the service level and the cost of service can be described as a rising curve (Figure 3.2, The costs of service). This relationship is due to the higher costs of the additional inventory that is needed to cover higher levels of demand.

Figure 3.2 The costs of service, Christopher (1992) Inventory Costs Inventory is found throughout the logistic system (see figure 3.3). Costs related to inventory are separated into two distinctive categories: inventory carrying costs and warehousing costs. Inventory carrying costs include costs that vary with the level of stored inventory. These costs are categorized into the following groups:

• Capital costs: the company’s opportunity cost of capital multiplied by the variable out-of-pocket investment in inventory

• Inventory service costs: insurance and taxes on the inventory • Storage space costs • Inventory risk costs: obsolescence, damage, pilferage and relocation costs. (Lambert

& Stock, 1993) Warehousing costs are all the expenses that can be eliminated or must be increased when the number of warehousing facilities change. Most warehousing costs will not change with the level of inventory, but when stocking locations change. (ibid)

Figure 3.3 Inventory throughout the logistic system, Lambert & Stock (1993) Administration Costs Administration costs include order processing costs and information costs. The order processing system is the nerve centre of the logistic system. A customer order is the message that sets the logistic system in motion. The speed and quality of the information across the supply chain is vital. The information flow has a direct impact on the cost and efficiency throughout the logistic system. (Lambert & Stock, 1993) Costs included in the concept:

• Cost of order transmittal • Order entry • Order processing • Related handling costs • Associated internal and external communication costs (ibid)

Raw materials inventory

In-process Inventory

Finished goods inventory at plant

Finished goods inventory in field


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Production Related Costs Segerstedt (1999) implies that material planning aims at creating a production free from interference to as low cost as possible. This is done by having as much material as possible available without tying up capital. According to Lambert & Stock (1993), production related costs consist of some or all of the following:

• Production Preparation Costs, including setup time, inspection, setup scrap and inefficiency of beginning the operation

• Capacity lost due to changeover • Material handling, scheduling and expedition

Transportation costs The single largest cost component of logistics is transportation cost. The cost is often half of the total logistic costs. Trucking cost is the most expensive mean of transportation. (Gunasekaran, Patel and Tirtiroglu, 2001) According to Disney, Potter and Gardner (2003) transportation costs can be minimized in two ways. A product can either be routed through a distribution centre or by only permitting full truck loads. Hines et al (2000) imply that because trucks often return empty the transports only achieves 50% fill rate.

3.2 Parameters Affected by VMI relationship The total cost concept highlights that cost reduction in one area may affect another area in the logistic system. In order to fully examine VMI relationship the authors will summarize how VMI will affect the different logistic parameters.

3.2.1 Service Level The issue of service level is to keep the level high without increasing the costs. There are different possibilities to find new strategies for doing this. One strategy can be to speed up the information flow of end customer demand upstream in the supply chain. Another strategy is to use faster transportations. Both strategies cause a movement in the cost of service curve to the right as in figure 3.4 Shifting strategy. (Christopher, 1992)

Figure 3.4 Shifting strategy, Christopher (1992) Kuk (2004) also argues for speeding up the information flow. He implies that one of the benefits of VMI is that the supplier is more able to construct more accurate forecasts with full consumption information from customer. This results in a better respond to end customer demand. VMI also gives the supplier an opportunity to plan his deliveries better in order to deliver to the customer who is in the greatest need of goods (Waller et al 1999). Hines et al (2000), Kuk (2004) and Waller et al (1999) conclude that VMI results in an increase in level of customer service due to the decrease of the risk of no order


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fulfilment. In the long run this will lead to a potential increase in sales (Pohlen & Goldsby, 2003). However, Kuk (2004) implies that VMI relationships sometimes have led to that less prioritized customers (non-VMI) not have received their goods in time.

3.2.2 Inventory The issue of inventory is that it ties up capital, requires management and needs storage space. High inventory levels result in unnecessary high costs while a low inventory level may cause delays in production or lost sales. (Segerstedt, 1999) According to Waller et al (1999), VMI leads to a great decrease in inventory level. The dramatic reduction in cycle stock, that VMI results in, comes from the shortened order review period that is due to the increase in information flow. Further, he implies that it makes no difference if the demand variability is high or low. The reduction in inventory level is regardless still significant. Christopher (2004) proposes that the supplier’s safety stock will be reduced as a result of the direct access to information of customer demand. Further, he implies that the customer will benefit from the relationship. This is in form of a significant decrease in inventory level and reduced risk of stock outs. According to Lapide (2001), the reason for descend in inventory levels at both the supplier and the customer is for not keeping more stock than needed. Pohlen & Goldsby (2003) imply that the sales division in a VMI relationship is no longer pushed to keep stock to remain a high service level; instead they look for the best for the entire supply chain. Consequently, VMI will lower the capital cost of inventories throughout the supply chain. This is due to the fact that only goods that are demanded in the near term are transported and stored. Hence, with more accurate forecasts, the supplier’s raw materials and component inventory are also likely to decrease. (ibid) In the long run, VMI allows both customer and supplier to cut total inventory related cost. However, the immediate effect on inventory level is more straightforward at the customer side than at the supplier side. The customer will see instant short term cost savings in form of decreased inventory costs, while the supplier, in the beginning of the relationship, even may suffer from an increase in inventory levels. This is due to the fact that the supplier more or less takes over the ownership of the customer’s inventory. In the long run, when the supplier and the customer adjust their distribution, market effort and production, both parties will benefit from lower inventory level. (Dong & Xu, 2002) The effect of risen inventory level in the beginning of VMI must not be confused with pushing inventory upstream in an attempt to off loading inventory burden onto the supplier. According to Hines et al (2000), this is not true VMI.

3.2.3 Administration A traditional order process is associated with a duplication of work; both administrational personnel at the supplier and at the customer are involved in work tasks that are similar to each other. By introducing VMI, this duplication of work will be reduced since the supplier will be fully responsible for handling the ordering process.


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(Mattsson, 1999) This will most likely generate more administration at the supplier and hence increase his processing cost. On the contrary, the customer will have a decline in these costs. Nevertheless, the entire supply chain will experience a decrease in order processing costs. (Pohlen & Goldsby, 2003) Waller et al (1999) imply that VMI results in fewer orders that are due to misinterpretation between the customer and his supplier. The supplier will have a more accurate view of the demand which will make him more able to interpreter his customer’s demand and plan his production more effectively. When it comes to information costs it will increase in a VMI relationship. The information transmittal is vital and the success of the implementation greatly depends on computer platforms, communications technology and product identification and tracking systems. These systems are associated with high implementation costs, but the cost is declining as communication technology becomes more economically available. (Waller et al, 1999) Hines et al (2000) argue that the supplier will obtain benefits from the high system implementation costs. This is since the customer is more closely integrated and therefore less open to switch supplier and vice versa. Transparent information throughout the supply chain is a requirement for a successful VMI relationship (Waller et al, 1999). Improved results will come from shared information about inventory, forecasts, sale and promotions- and market-strategies. Hines et al (2000) imply that the increase in information flow also will increase the risk for the customer. Information can be commercially sensitive if the supplier also delivers goods to a competitor of the VMI customer. However, Waller et al (1999) highlights the important of trust to the transparent information between supply chain partners.

3.2.4 Production One of the major challenges for SCM has been the lack of demand visibility. Traditionally, the only factual demand information companies have had are the orders that their customer place. This will cause the bullwhip effect to arise and make the demand look variable and unpredictable even when it is stabile. In the long run, this will lead to inefficient capacity utilization, poor product availability and unnecessarly high inventory costs in form of safety stocks. (Småros et al 2003) VMI leads to two types of bullwhip reductions: elimination of one layer of decision making and reduction of information flow time delay. This will decrease the distortion and damp down the Bullwhip effect. (Disney & Towill, 2003) The supplier’s access to consumption information is the key to the success of VMI. This information will help the supplier to make better forecasts and better respond to the customer’s demand. Hence, their replenishment decisions are more likely to be accurate and the orders are more likely to meet the true demand of the end customer. (Kuk, 2004)


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The supplier’s production will be smoother in a VMI relationship, with a large extent of smaller peaks and less uncertainty in demand. In return, this will allow a smaller buffer of capacity and inventory in the factory. Hence, VMI reduces costs by allowing better resource utilization for production. (Waller et al, 1999) Hines et al (2000) imply that the supplier’s production will be more flexible due to the increase in information of customer demand. Lapide (2001) acknowledges improved planning process and therefore smother production to be the most important benefit of VMI. An improved planning process will indirectly lead to all other benefits of VMI. Further, Lapide (2001) and Småros et al (2001) recognize the incorporation of VMI information into to the suppliers’ operational planning process and system to be critical for the success of VMI. If the supplier fails to integrate the VMI information into his own forecast he can never fully gain from VMI (see figure 3.5 VMI and forecast relation). The supplier must make use of the information in short term as well as long term in order to reduce his forecasting error. Lapide (2001) claims this to be one of the major challenges of VMI.

Figure 3.5 VMI and forecast relation, Lapide (2001)

In most cases, only parts of the supplier’s customer base are involved in a VMI relationship. (Småros et al, 2001) This means that the supplier needs to set up his operations in a way that both VMI and non-VMI customers can be efficiently served. Småros et al (2001) have done a simulation to examine how the number of VMI customers affects the supplier’s production efficiency. They have come to the conclusion that a supplier could benefit even from a partial increase in demand visibility, i.e. number of VMI customers. However, the benefits become greater as the number of VMI customers increases. Then the manufacturer can replace more and more order data with actual sell through data and hence better damp down the bullwhip effect. The simulation also demonstrated that an increase in demand visibility


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will remove one level of order batching. This means that the impact of access to the customer sell through data is generally greater for products whose minimum replenishment batches are larger in proportion to their average weekly demand. For products with high replenishment frequencies the change is less dramatic. Further, Småros et al (2001) imply that there is a strong link between the supplier’s production planning cycle and the potential benefits of VMI. Increased demand visibility is more valuable when using a shorter planning cycle. A supplier with stabile demand and long planning periods shall not expect significant benefits from VMI. However, VMI present an opportunity to move towards shorter planning periods without having to fully face the negative impact that the production load has on capacity utilization. VMI thus reduces the trade off between efficient capacity utilization and flexible production. (ibid) Vergin & Barr (1999) have come to the conclusion that reduced inventory level and improved service level is more likely to occur to the customer than to the supplier. They also mean that it is difficult for the supplier to incorporate VMI into the production. In their research, they found that only two out of ten suppliers had been able to achieve better production management due to VMI. Only one had been able to lower the internal inventory. However, this supplier was also the only one that had been able to reach the threshold volume of VMI; if the VMI volume does not reach 30-40%, it is likely that VMI do not influence the forecasting and production at the supplier. (ibid)

3.2.5 Transportation A risk by using a more frequent order process is that more partly loaded shipments may be used. This is an effect of VMI but it can be avoided. Due to the use of more accurate information about customer demand the supplier has an opportunity to plan and optimize his deliveries to all his customers. This by having an efficient route planning. This can lead to a truck making multiple stops to replenish inventories at several customers. This results in a coordination of deliveries to all customers which additionally results in full truckloads. In return the transportation costs decreases. (Waller et al, 1999) Disney et al (2003) imply that in the short time the deliveries will be the same as in before implementing VMI into the supply chain. However, in the long run the supplier will use fewer deliveries due to the ability to plan the truckloads needed based on customer demand. This leads to a decrease in transportation costs.


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3.3 Chapter Summary The theoretical frame of reference highlights the importance of evaluating all the logistic activities that may be affected in a VMI relationship. In figure 3.6 the authors have summarized how the logistic system will be affected when Ikea implements VMI. The consequences are separated into supplier, Ikea and supply chain. Further, in figure 3.7 the authors emphasize which parameters that shall be investigated in order to systematically examine each logistic area.

Ikea Supplier Supply chainService Level

Costumer stock outs costs

Sales volume

Inventory

Raw material and component costs X

Finished goods

Working capital

Safety stock

Cost for keeping inventory Cycle stock

Administration

Communication investment

Forecasting costs

Order processing costs

Production

Productivity X

Machine utilization X

Transportation

Distribution costs, short term X

Distribution costs, long term X

Figure 3.6 VMI consequences


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Figure 3.7 The effect of VMI on logistic parameters

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CHAPTER 4 METHOLOGICAL FRAMEWORK

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4 METHOLOGICAL FRAMEWORK In the following chapter the authors describe the methods that have been carried out while conducting this thesis. They will start by explaining the research purpose and then they present the research approach. Then they will present the research method and its strategy. They continue by presenting the data collecting process and the analyze approach. The authors finish the chapter by presenting the quality criteria for the thesis.

4.1 Research Purpose The purpose of a research can be classified into three different directions; exploratory; descriptive and explanatory (Saunders, Lewis and Thornhill, 2000).

4.1.1 Exploratory Study In an exploratory approach the researcher strives to find out what is happening and seeks new insights about the research object. The approach is mainly useful when the researcher wants to clarify his understanding of an issue. When conducting an exploratory study the research is flexible and adaptable to change in the means of that in the beginning the focus is broad and becomes narrower during the research process. (Saunders et al, 2000) According to Kinnear & Taylor (1996) the exploratory study’s purpose is to formulate hypotheses concerning potential problems.

4.1.2 Descriptive Study A descriptive study is marked by a clear statement of detailed research objectives and information needs (Kinnear & Taylor, 1996). The aim is to portray a problem, situation or a person. The researcher does not draw any conclusions from the collected data. He only describes what he sees. When using this approach it is required to have a clear picture of the object on which the researcher collects the data. (Saunders et al, 2000)

4.1.3 Explanatory Study According to Saunders et al (2000), when using the explanatory approach the researcher studies a problem or a situation in order to explain the relationships between variables. Kinnear & Taylor (1996) imply that the approach requires a planned and structured design that will minimize systematic errors and maximize reliability. Further, it permits the researcher to draw conclusions regarding the relationships. The main data sources for the explanatory research are interviewing respondents through surveys and/or conducting experiments.

4.1.4 Chosen Study In order to answer the research questions, the authors searched for relationships between different parameters that are affected by VMI. The authors also aimed to draw conclusions and to be able to give further research recommendations. The first research question concerning how the logistic parameters are affected by VMI was tackled by a comparison between the benchmarking companies’ experience, collected data from literature and data from the case companies. From this the authors draw conclusions.


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Further, the second and the third question were acknowledged to be answered by interviews with the case companies and comparison with the literature. The fourth question could also be answered by interviews. In this case by interviewing employees at Ikea and the case companies. The study can therefore be described as an explanatory study. The authors also chose this approach because of the aim to draw conclusions from the research object.

4.2 Research Approach There are two different ways of research approaches, the quantitative and the qualitative. There are several differences between the two approaches. (Saunders et al, 2000)

4.2.1 Qualitative Approach When the researcher uses a qualitative approach the collected data and information is soft i.e. comfort and good function (Wiedersheim-Paul & Eriksson, 1999). Holme & Solvang (1996) imply that the qualitative approach uses a more flexible structure during the data collection phase. They point out that the questions are able to be changed during an interview as an example of flexibility. This flexibility has a benefit as it gives the researcher a wider perspective and new insights during the interview. However, it can also be a disadvantage due to the impossibility to compare data from two or more interviews. (ibid) Saunders et al. (2000), proposes that in a qualitative approach there are several true realities and the researcher strives to get the overall picture.

4.2.2 Quantitative Approach When using a quantitative approach the collected data is hard i.e. revenue in dollars (Wiedersheim-Paul & Eriksson, 1999). Saunders et al. (2000) imply that in the quantitative approach the researcher has the roll of an objective analyst that is not influenced by the object of the research. According to Holme & Solvang (1996) the quantitative approach applies the structured way of approaching the research subject. This leads to standardized interviews from which the result easily can be generalized. A weakness with this method is that the researcher is not guaranteed that the collected data is relevant for the research purpose. (ibid)

4.2.3 Chosen Approach The authors of this thesis strived to stay objective during the research and not be affected by the case companies or by Ikea Trading. The collected data from the case studies were typical hard data. Although some of the data from the benchmarking studies and case studies were opinions and thoughts about VMI and the evaluations of it. However, the authors’ conclusions and the result of the thesis are mostly based on hard data. All interviews had prewritten questions that the authors used during the interviews. The questions were similar to each other which led to that the collected data was able to be generalized and compared. The above discussion concludes that this thesis has a quantitative approach together with some qualitative features.


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4.3 Research Method According to Saunders et al (2000), the researcher has a choice to make on how the research project will involve the use of theory. The researcher has to choose from the inductive method or the deductive method. Saunders et al (2000) defines the inductive method as a method where the researcher first collects the data. Thereafter he develops a theory as a result from the study of the observations. In the deductive method the researcher is well informed about a theory and tests the theory in reality. Deduction emphasizes collection of quantitative data and induction emphasizes collection of qualitative data. However, it is possible to combine the two methods in a research according to Saunders et al (2000) and Thurén (1992). In order to answer the first three research questions the authors began by observing the VMI process at Ikea and interviewing employees at Ikea about the process. This was followed by a literature review in search for written theories about VMI and economic evaluation strategies of VMI. The authors then compared the theories with the benchmarking observations in search of similarities. After the comparison the authors made further observations by conducting interviews with the two case companies and Ikea employees. This later led to the conclusions and result of the thesis. The above discussion shows on the use of a deductive approach on the three first questions. The fourth and last research question was answered by interviews with the Ikea staff and the case companies’ staff. This shows on the use of an inductive approach on the fourth research question.

4.4 Research Strategy When conducting a research, a defined research strategy will serve as the plan on how to answer the research questions. The strategy should contain clear purposes and specify the sources from where the data will be collected. There are four major strategies: experiment; survey; action research and case study. (Saunders et al 2000)

4.4.1 Experiment Experiment research is the classical strategy for natural science but it is also used in social science research. It involves a definition of a theoretical hypothesis, a selection of samples of individuals from a known population and measurements on few variables. (Saunders et al 2000)

4.4.2 Survey Survey strategy is typically used when the researcher uses the deductive method and it is a popular strategy in business research. The survey is often designed as a questionnaire that is handed out to a sizeable population. The data can be standardized and allows comparison. However, the strategy is time consuming due to construction of the questionnaire and the answer analyzes. (Saunders et al 2000)


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4.4.3 Action Research According to Saunders et al (2000), the action research is conducted by a close relationship and collaboration between the researcher and the studied objects. The researcher is a part of the organization where the research and change process are taking place. (ibid)

4.4.4 Case Study Saunders et al (2000) implies that a case study is of particular interest if the researcher wishes to gain a rich understanding of the context of the research. It is possible to generalize the outcome from a case study when there are theories and models written about the research subject (Wiedersheim-Paul & Eriksson, 1999). The case study strives to generate answers to the questions: Why?; What?; and How? According to Merriam (1994), the case study does not have any restrictive rules on how the data should be collected or how the data should be analyzed. Furthermore, she implies that the case study is an investigation of a situation, person, program or institution. The study is encircled with clear boundaries.

4.4.5 Chosen Strategy The focus of this research is on the VMI relationship between Ikea and two suppliers and the benefits it is generating. The authors of this thesis had clear boundaries during the research due to the two case companies. The authors achieved a deep understanding about how VMI affects the case companies and Ikea through conducted interviews and observations. The study also answers what parameters the VMI relationship affects. In order to fulfill the purpose and answer the research questions the authors carried out the case study strategy in this thesis.

4.5 Data Collection There are two general types of data collection; primary and secondary data collection. The differences between the two types are defined by the purpose for which the data is collected. Primary data is data that is especially collected for the purpose of the research at need. Secondary data is data that have already been collected for another purpose. (Kinnear & Taylor, 1996) Wiedersheim-Paul & Eriksson (1999) urge the researcher to use secondary data to as great extent as possible.

4.5.1 Secondary data In this research, the authors used both primary and secondary data. Secondary data was used in two different aspects. First, the authors used secondary data in form of a broad literature review of research about VMI. The purpose of this study was to obtain an understanding of the problem area in order to develop an appropriate purpose and delimitations. Further, the authors also used secondary data to approach the issue of the thesis. They did a thorough review of literature concerning both economic evaluation methods and parameters that may be affected by a VMI relationship. In the search for literature and articles the authors visited Luleå University Library. The words and phrases used in the search were; “Vendor managed inventory”; “Supply chain


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management”; “Economic evaluation”; “Performance measurements”; “Logistic management”.

4.5.2 Primary Data When necessary, the authors used primary data. There are three different methods of collecting primary data; observation, interview and questionnaires. (Saunders et al, 2000) In this research the authors used semi-structured interviews which contained of list of themes and questions that were presented to the respondents. The interviews were divided into three different clusters where the focus and purpose of the interviews differed. The first interviews took place at Ikea and were related to developing the purpose of the thesis. The authors interviewed 9 employees in order to get an understanding of the VMI process at Ikea (see appendix C). The second cluster of interviews was connected to the investigation of parameters affecting a VMI relationship. The authors interviewed and benchmarked against three companies that had realized economic evaluations of VMI (see appendix D). At last, employees at the case companies were interviewed (appendix E). This in order to investigate how the VMI relationships have affected the companies’ logistics parameters.

4.6 Analyze approach In order to fulfil the purpose of the thesis the authors have done a broad literature review concerning both economic evaluation methods and parameters that may be affected in a VMI relationship. Further, they have benchmarked against other companies that have realized economic evaluations of their VMI relationship. In the analyze process the results from these studies have been compared to the outcome of Ikea’s VMI relationships with Bräntorp and Tibro Kontorsmöbler.

4.7 Quality Criteria The following section will start by stating the potential sources of errors. Further, the authors will discuss the validity and reliability of the thesis.

4.7.1 Sources of error Christensen (2001) acknowledges that a research is always a compromise between advantages and disadvantages associated with different research designs. Therefore, it is of great importance that the researcher carefully analyzes, and present, potential sources of errors that are related to the study. Wrong Purpose and Direction According to Lekvall & Wahlbin (2001), a potential source of error is incorrect or incomplete purpose and delimitations. This may lead to an insufficient result that will not help the decision maker in his decision. (ibid) The authors systematically analyzed the problem area of VMI at Ikea. They did a thorough review of literature and research, and they interviewed employees at different divisions and companies. Hence, they had a broad understanding of how and why


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companies implement VMI. They also had an understanding of the VMI process at Ikea and the company’s general opinion about VMI. Therefore, the authors recognize themselves to have set the right purpose, research questions and delimitations. Interference error Interference error refers to the problem of drawing conclusion from the “reality” that has been investigated and is due to problem of choosing valid respondents. There are two different kinds of interference error; non-response error and sample error. (Lekvall & Wahlbin, 2001) All contacted respondents participated in this research. Hence, the non-response error is recognised to be diminished. However, the authors acknowledge the sampling of case suppliers to be a potential source of error. The Operating Manager at Trading Area Wood selected which VMI relationship that should be investigated. The authors did not take any part in this selection. Further, both case suppliers are within the Swedwood cooperation, which is owned by Ikea. Hence, the relationship between the companies may not be the same as in a traditional supply chain. This may cause the results to be difficult to generalize on all VMI relationships within Ikea. Regarding the sampling of benchmarking companies, the authors selected and contacted the companies. All contacted companies had done economic evaluations of their VMI relationships. The authors chose to examine both companies that had come to the conclusion that VMI is healthy for the business as well as a company that had come to the conclusion that they should end all their VMI relationships. The reason for doing this is that the authors suspected that the companies had looked at different parameters in their evaluation or had implemented VMI differently. Measurement error Error of measurement occurs when the method of measurement will give an inaccurate result. This will lead to a poor validity and reliability of the study (Lekvall & Wahlbin, 2001) In this research, the authors used quantitative data to as great extend as possible. However, in many cases it was difficult to collect this form of data. This was due to the lack of saved statistical data at Ikea and Tibro Kontorsmöbler. As a consequence the authors were forced to supplement with qualitative data. In the case of Bräntorp, the company keeps track on essential logistic parameters and does systematic examinations of their performance measurements. This enabled the authors to thoroughly examine how the VMI relationship has affected Bräntorp’s productivity, service level and inventory level at plant. Regarding the inventory level at the distribution centres, Ikea do not save this statistical data. However, since the implementation of VMI, Bräntorp keeps track of their inventory level at Ikea. Therefore, the authors were able to estimate the change of inventory level on Bräntorp’s products at Ikea.


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The authors also want to highlight that the calculation of change in inventory level of Ädel klarlack och Ädel mellanbrun is based on inventory level at different seasons. It would be more accurate to estimate the inventory level at the same weeks for different years. This since the sale may be seasonal and therefore the inventory level may be altered during the year. However, the products that are evaluated have stabile demand during the year and the authors have chosen to examine a high number of weeks. Therefore, they acknowledge the seasonal affect to be eliminated. In the case of Tibro Kontorsmöbler, it was hard to collect quantitative data. The company implemented VMI six years ago. They have not saved any statistical data regarding inventory level or productivity measurements from the time of the VMI implementation. In order to evaluate the outcome of VMI the authors therefore used qualitative data. The Master Production Planner at Tibro Kontorsmöbler used his experience to do an educated guess on the change of logistic parameters. He has worked with internal logistics at the company for 15 years. Consequently, he has great experience about the company’s production performance before the VMI implementation as well as after the implementation. Therefore, the authors acknowledge him to be in the best position to estimate the change in logistic parameters at Tibro Kontorsmöbler. Regarding the service level, Ikea follows up their suppliers’ performance. This enabled the estimation of change in service level at Tibro Kontorsmöbler. The authors were not able to estimate the change of inventory level at Ikea distribution centres. This is due to the lack of saved information at Ikea. This is acknowledged to be a potential source of error. It is always difficult to measure the procurement process at a company. Therefore, the change in administration costs is based on qualitative data. The employees at Ikea, Bräntorp and Tibro Kontorsmöbler did educated guesses on how their work has been affected by the VMI relationship. Processing and Interpretation error According to Lekvall & Wahlbin (2001) processing and interpretation errors is due to incautious handling and interpretation of the data collected. This may lead to incorrect conclusions and may cause wrong recommendations. In this research, the authors acknowledge that it is hard to evaluate what changes in logistic parameters that are due to the VMI relationship and what changes that are due to other investments. In the case of Bräntorp, the company has implemented VMI as well as a new planning tool called APP, Advanced Production Planning. The APP tool plans the production capacity by smoothening the machine utilization. This application together with VMI helps the company to plan its production better and increase its service level towards Ikea. It is difficult to estimate which changes in logistic parameters that are a direct result of VMI and what changes that are caused by the APP tool. The authors also acknowledge that many changes are results from the synergies from VMI and APP.


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In the case of Tibro Kontorsmöbler, the company implemented VMI six years ago. Since then the company has realized major changes in structure which has involved great investments in facilities and equipment. Therefore, it is difficult to estimate what changes that has come as an effect of the VMI relationship and what changes that are due to other investments done by the company. The authors also want to highlight that the company’s volume ordered through VMI is declining. More and more products are ordered through transit. As a result of the low volume of VMI products, the authors imply that the company may not be able to realize all the benefits of VMI.

4.7.2 Validity Validity concerns whether the method of measurement actually measures what it is intended to measure. The concept is divided into internal and external validity. The internal validity is due to how well the research results correspond to the phenomena that is being investigated. External validity concerns the ability to generalize from the results. (Wiedersheim-Paul & Eriksson, 1999) The internal validity of this thesis is acknowledged to be good. The authors did a thorough review of literature concerning the issue of the thesis before they set their purpose. They also acknowledge that they did a comprehensive litterateur review concerning how logistic parameters are affected by a VMI relationship. Further, the benchmarking studies enlarge the internal validity. It adds a dimension of how other VMI relationship have been realized and evaluated. The authors want to point out that the broad use of qualitative data, instead of quantitative, may have a negative effect on the internal validity. However, this could not have been avoided because of the lack of saved statistical data at the examined companies. The authors also acknowledge that both case companies have done other investments then just VMI. This has resulted in that it was difficult for the authors to analyze which of the effects that were direct results of the VMI relationship. However, the authors imply that they have done sufficient analyzes of the literature, benchmarking studies and case studies. They have interviewed many persons at different companies with different experience and attitude. The result of this thesis is based on these persons common opinion. Regarding the generalization of the result, the authors acknowledge it to be good. They have evaluated two VMI relationships at Ikea. One of these was launched six years ago and the other one was launched 15 months ago. As a consequence, the authors were able to investigate a mature VMI relationship as well as a newly implemented one. However, the authors acknowledge that the use of case companies that is owned by Ikea may not be representative for suppliers that is not a part of the Swedwood group. This may have a negative impact on the ability to generalize from the results.


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4.7.3 Reliability Reliability concerns whether the method of measurement gives stabile and reliable results. According to Saunders et al (2000) reliability can be assessed by answering two questions; • Will the measure yield the same result on different occasions? • Will similar observations be made by different researches on different occasions? The reliability of this thesis is acknowledged to be high. The authors have systematically collected the information. They carried out semi-structured interviews with standardised interview forms. All interviews were booked in advanced and held in a serene environment. The interview forms were sent to the respondents in advanced. This was in order, for the respondents to be able to prepare themselves for the interview. Both authors have been present at all interviews. One of them has been assigned to interview the respondent and the other has taken detailed notes. All of the interviews have been transcribed and the text has been approved by the respondents before publishing. This has resulted in that the outcome of the thesis will be the same on a different occasion as well as if it is performed by different researchers.

CHAPTER 5 BENCHMARKING STUDIES

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5 BENCHMARKING STUDIES In this chapter the authors seek to broaden the reader’s knowledge of VMI relationships. They do this by presenting three benchmarking studies. First they present a successful VMI relationship in a customer view by Volvo Powertrain. Then they present a successful VMI relationship in a supplier view by Procordia Food. Finally they present an unsuccessful VMI relationship by ICA.

5.1 Successful VMI Relationship in a Customer View

5.1.1 Volvo Powertrain Volvo Powertrain is the world’s largest manufacture of heavy-duty diesel engines. The company coordinates Volvo’s driveline activities and supplies the entire Volvo group with driveline components. Volvo Powertrain has approximately 8,000 employees and has operations in Sweden, France, Brazil and the US. In Sweden they have sites in Skövde and Köping. The production is customer based, i.e. when an engine is produced it already has a defined customer. (www.volvogroup.com)

5.1.2 VMI at Volvo Powertrain In April 2002, Volvo Powertrain launched its first VMI relationship. At the time, the company was facing high levels of inventory. Volvo Powertrain recognized VMI as an efficient strategy to lower the inventory level and also strengthen its relationships with its suppliers. At first, VMI was implemented among 50 suppliers that together provided approximately 60 percent of the value by volume. This strategy was successful and today Volvo Powertrain is involved in about 70 VMI relationships. (Global Process Developer, Volvo Powertrain) To manage the VMI relationships, Volvo Powertrain purchased a VMI application from PipeChain. The system is a B2B solution that supports the supplier and customer in the transaction of transparent information. Each day, Volvo Powertrain sends demand forecasts and inventory levels to the suppliers. The only requirement for the supplier is to have access to the Internet. The transaction solution is free of charge for the supplier. Hence, Volvo Powertrain pays the license fee to PipeChain. Volvo Powertrain and the customer jointly define maximum and minimum level of inventory at plant. Volvo Powertrain also owns the goods as soon as it is on the carrier. (ibid) At Volvo Powertrain VMI is a success. However, it is only the sites at Skövde and Köping that conduct VMI. According to the Global Process Developer, VMI is a total solution and in the future VMI shall be conducted at all of the company’s sites. She also looks forward to further develop the VMI relationships and sees an opportunity for Volvo Powertrain to only pay for the goods that they use. (ibid)


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5.1.3 Effected Parameters The main focus of VMI was to decrease the inventory level at Volvo Powertrain. VMI also aimed at increasing the service level, cover the right quantity of material in the right time and introducing a common “way of working” throughout the company. (Global Process Developer, Volvo Powertrain) In February 2004, Volvo Powertrain evaluated their VMI relationships and followed up the inventory level at the plant in Skövde. The evaluation showed that the cover days of stock had been lowered from seven days to less than three days. Figure 5.1 illustrates this decrease. The upper line represents the inventory level of non-VMI products. The major drop in week 52 is caused by implementing VMI with the last supplier. The change in inventory level was even better than the company had expected. The Global Process Developer acknowledges the inventory reduction to be 67 percent. She also recognizes that VMI has resulted in reduced administration and says that VMI has changed their way of working. Previously, the employees focused on making orders. Today, they analyze parameters and examine failure reports. (Global Process Developer, Volvo Powertrain)

Figure 5.1, Inventory follow up at Volvo Powertrain Skövde The Global Process Developer at Volvo Powertrain acknowledges the suppliers to be very satisfied with the outcome of VMI. Today, a supplier has a more accurate view of Volvo Powertrain’s demand and he can therefore better plan his production. One of the major advantages is that VMI generates a more flexible production. Another advantage is the demand visibility of Volvo Powertrain’s inventory levels. This generates better information for the supplier to base his prioritizing decision on. VMI may also lead to a decrease in set up time. As an example the Global Process Developer described how one of their suppliers needed to cut in set up time. By implementing VMI the supplier managed to do major reductions in set up times.


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However, the Global Process Developer also acknowledges that only a small number of the suppliers have faced a decrease in inventory level. (ibid) The major investment for Volvo Powertrain involved the license fee (PipeChain), consultation fee and costs for the transition of information from PipeChain to Volvos ERP system. Yet, the payback time for implementing VMI was only six months. (ibid)

5.2 Successful VMI Relationship in a Supplier View

5.2.1 Procordia Food Procordia Food is a part of the Orkla Group and one of the Nordic region’s leading supplier of manufactured food products for the grocery trade and the catering sector. The company produces well known brands such as Felix, BOB, Önos, Risifrutti and FUN Light. Procordia Food has an annual turnover of 3 billion SEK and they have approximately 1,500 employees. Their headquarters is situated in Eslöv, Sweden and the company has seven other production plants in Sweden. (www.procordiafood.se)

5.2.2 VMI at Procordia Food Procordia Food launched its first VMI relationship with Stabburen in 1999. The strategy was a success and today the company is involved in five different VMI relationships. In 2004, the company implemented VMI with Semper, a customer to whom they deliver canned baby food. Before the launch of VMI the customer had a traditional ordering system and did not use EDI. The relation involved a huge amount of manual work and the administrator sometimes had to keep track of up to 300 orders. The relationship was to a great extend depended on the administrator’s knowledge. VMI was identified as a strategy to decrease administration costs. To efficiently organize the transaction of information the partners contacted Intentia; their ERP system provider. Together, the companies developed a new VMI application. (Production Planner, Procordia Food) Today, the VMI customers send daily reports to Procordia about their inventory levels and customer demands. Once a week Procordia also receives a sell forecast for the next 18 months. The reason for such a long time frame is that Procordia has to forecast their supply of corps. (ibid) It is Procordia Food that has initiated VMI in all relationships except the one with Semper. In that particular case it was the customer that insisted on a VMI solution. All of the VMI customer’s products are ordered through VMI. According to the Production Planner, the maximum and minimum levels are jointly decided by Procordia and its customers. Thanks to the application the staff at Semper can also view the scheduled inflow of products from Procordia Food. (ibid)


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5.2.3 Effected Parameters Prior to the launch of the VMI relationship with Semper the companies together defined expected returns on the investment. The main focus was to decrease administration costs for the ordering process. They also aimed to cut production costs in form of gained productivity. (Production Planner, Procordia Food) Today, it is not yet 12 months since the launch of VMI and already both partners have reached their defined targets. The service level has increased from 94 percent to 98 percent. The inventory level at Semper has been decreased by 30 percent. At the same time the order processing costs have declined by 40 percent throughout the supply chain. This can be compared to the cost of four employees. The inventory level at Procordia Food has not changed, but the Production Planner acknowledges it to be more stabile; the peaks are not as high as before. (ibid) Procordia Food has not evaluated their other VMI relationships as thorough as the one with Semper. However, the Production Planner recognizes major benefits in production flexibility that is due to VMI. Today, Procordia can supply the customer with the right quantity of products at the right time. Previously, they had a static flow of products. It was difficult to bring forward the supply of products or deliver products at a later date then ordered. Today, the flow of products is more dynamic. Procordia Food has access to information about the customers’ consumption and inventory level. They know what and when they need to supply their customers. This means that they can plan their production more efficiently. As an example the Production Planner described a scenario when Semper Russia and Semper Denmark ordered canned baby food. Earlier, they could receive an order from Denmark just as they had finished an order of the same product from Russia. This led to high set up costs. Today, the demand visibility permits Procordia Food to produce both orders at the same time. Hence, VMI has made it easier for Procordia to co-plan the production of different articles in order to optimize their set up times. (ibid)

5.3 Unsuccessful VMI Relationship in a Customer View

5.3.1 ICA The ICA group is one of the leading retailers in the Nordic region. The group has more than 40,000 employees and operates about 3,000 stores in Scandinavia and the Baltic states. The logistics that supports the organization is large; everyday 200 trucks and 140 truckloads drive 90,000 kilometers which is approximately 2.5 laps around the world. The trucks make 1,850 customer stops everyday. (www.ICA.com) To achieve the ICA vision; “to make everyday a little easier”, ICA decided in 1995 to use the VMI concept together with the supplier Abba Seafood (Replenishment Manager, ICA).

5.3.2 VMI at ICA After the launch of the first VMI relationship with Abba Seafood, ICA launched four other relationships; Metsä-Serla in 1997; SCA in 2000; Colgate in 2001 and OLW in


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2002. The choice of suppliers was based on the volume they delivered to ICA and their level of EDI development. The suppliers also had to be interested in trying the VMI concept in order to be selected as a partner. In the relationships the ownership of the goods belonged to ICA as soon as it was received at the distribution centers. (Replenishment Manager, ICA) On a weekly basis the VMI suppliers obtained a sales forecast for the forthcoming 28 days’ daily sales per article and summarized forecasts per week on a total period of ten weeks. Every night the suppliers received, by EDI, an inventory report on the inventory level per article and per distribution center. The inventory report included: • Inventory level • Expected replenishments • Orders on hand the forthcoming 28 days • Balance adjustments during the day (Slutrapport VMI, 2002) This information made it possible for the suppliers to deliver the demanded goods to ICA. ICA did not set up any maximum and minimum inventory levels at the distribution centers. They trusted their suppliers to make the right decisions. (Replenishment Manager, ICA)

5.3.3 Effected Parameters Before implementing VMI at ICA the company set up some objectives. The objectives for the OLW relationship were a decrease in throughput time from 9.2 days to 8.0 days, an increase in service level from 93 percent to 98 percent and a total cost reduction in the supply chain. These goals were reached after eight months. In an evaluation after eight months ICA could see a decrease in administration costs, storage costs due to fewer pallets and a reduction in tied up capital. The increase in service level resulted in an increase in sales by 23.5 percent. However, this sales increase may not have to be a result of the VMI relationship. It could also be an outcome of better market position by the OLW trademark. (Slutrapport VMI, 2002) The evaluation of the relationship between ICA and OLW did not point out any benefits for OLW except for an increase in service level. Due to the short lead time between the stores and OLW, OLW could not plan its production based on the information provided by ICA. The administration costs increased at OLW. (ibid) In 2002 the VMI relationship with SCA started to cause problems. SCA phoned ICA several times a day to check the actual inventory level at ICA. Due to this the two companies began to make manual adjustments in the information. This caused an increase in administration costs at both parts. Shortly after, the relationship with Abba Seafood also started to cause problems. The effect of this was an increase in administration costs. Therefore, ICA decided to end the two relationships. As a result


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ICA evaluated the remaining VMI relationships and came to the conclusion to end them as well. By 2005, ICA had ended all of their VMI relationships. (Replenishment Manager, ICA) The decision to end the VMI relationships was based mostly on soft factors and not on any formal investigation. One of the major reasons was, according to the Replenishment Manager that the technology developed far more during the time that ICA had VMI than they could come up to. The Replenishment Manager implies that ICA nowadays lives in an “online-world”. During the implementation of VMI, the development of technology resulted in a decreased order horizon from one day to just two hours. The consequence of this was that the information concerning inventory level and orders on hand was incorrect. The suppliers then had to call ICA 10 to 15 times a day in order to get the right information. (ibid) Another reason for ending the VMI relationships was that the suppliers did not have the right feeling and knowledge of ICA’s distribution centers. The suppliers delivered too much goods and sometimes the trucks had to return to the sender without unloading. This problem happened also due to EDI problems that occurred about two times a month. Further, the Replenishment Manager acknowledges that they experienced the VMI relationships to be dependent on the suppliers’ administrators’ personal knowledge. When the administrator at Abba Seafood left his position, the supplier lost important knowledge about the relationship. This affected the company negative in their replenishment process. (ibid) After ending the VMI relationship the suppliers told ICA that they were pleased to end it. They also did not think that the relationships were working as planed. Their increase in administration costs was not compensated by the decrease in inventory costs. (Replenishment Manager, ICA)

CHAPTER 6 CASE STUDIES

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6 CASE STUDIES In the following chapter the authors present the outcome of VMI at Bräntorp AB and Tibro Kontorsmöbler. The authors describe the logistic parameters and how they have been affected by VMI.

6.1 Outcome of VMI at Bräntorp AB Bräntorp AB was founded in 1942 in Nybro, Sweden and today the company has 168 employees. In 1991, Ikea bought the company and it became a subsidiary to Swedwood International. Swedwood International is a part of the Ikea group and consists of 32 companies. In 2004, Bräntorp had an annual turnover on 205 million SEK. (Logistic Manager, Bräntorp) Bräntorp is a manufacturer of kitchen front fixtures such as front drawers and front doors. The company has only one customer and it is Ikea. Bräntorp delivers the products to the Ikea distribution centers worldwide. In the delivery process, Bräntorp uses a 3P-logistic company which stores Bräntorp’s inventory of finished goods and schedules the carriers to the distribution centers. (Logistic Manager, Bräntorp) Bräntorp launched VMI together with Ikea in December 2003. Before starting the VMI relationship the company was facing difficulties in delivering the right product at the right time to Ikea. At the same time as the company implemented VMI it also began to work with a new planning tool called APP, Advanced Production Planning. The APP tool plans the production capacity by smoothening the machine utilization. The application together with VMI helps the company to plan its production better and increase its service level towards Ikea. (ibid) Every morning, Bräntorp receives a VMI file from Ikea. It contains inventory levels at the distribution centers, sales figures and booked orders. This information is automatically transferred into Bräntorp’s ERP system. No manual work is performed in this process. The ERP system together with APP plan the needed production based on the VMI file. Once a week Bräntorp receives a sales forecast with a 150 days horizon from Ikea. The forecast is only updated once a month by Ikea, resulting in an update once a month at Bräntorp as well. Bräntorp does not adjust their forecast based on the sales figures provided by Ikea. (Logistic Manager, Bräntorp)

6.1.1 Effected Parameters Service Level Before the implementation of VMI and the APP tool Bräntorp’s service level towards Ikea was poor. In 2003, the fulfilment rate was only about 70 percent to Ikea. This level was due to poor fulfilment rate from Bräntorp’s suppliers which resulted in shortages in finished goods to Ikea. Other reasons for the low service level were Bräntorp’s inefficient planning process and the fluctuation in order mass from Ikea. This


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was due to the OPDC ordering process that Ikea applied on Bräntorp. (Logistic Manager, Bräntorp) When implementing the VMI ordering system and APP, the fluctuation was smoothened and the production planning became more optimized and flexible. This resulted in an increase in service level. In 2005, the availability at Ikea’s distribution centers had increased to 99.4 percent. The products that are delivered to North America are not included in this figure. This is due to the use of another ordering system. The increase in availability can not entirely be assigned to the VMI implementation. It is also due to the APP tool and to a more efficient organisation at Bräntorp. (Logistic Manager, Bräntorp) Ikea has divided their products into four different categories based upon their required service level. The categories are:

S0: products that requires a service level of 100% S1: products that requires a service level of 99% S2: products that requires a service level of 95% S3: products that requires a service level of 90%

At Bräntorp they produce products that belong to category S1; S2 and S3. In figure 6.1 Graphic illustration of the increase in service level at Bräntorp, the change in service level is presented. The dip of service level in 2004 week 28 is due to an implementation of a new way of measuring the service level at Ikea. Hence, it has nothing to do with Bräntorp’s ability to deliver. Therefore, the company’s overall trend is an increase in service level. (Operating Manager, Trading Area Wood)

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Figure 6.1 Graphic illustration of the increase in service level at Bräntorp


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Inventory At Bräntorp the total inventory level has only decreased by three percent. This modest decrease is due to difficulties to predict and stock the right amount of products during a new release or termination of a product. The difficulties in these predictions are a result of the unpredictable demand at end customer. This is not, according to the Logistic Manager at Bräntorp, a problem that VMI can solve. This problem can only be solved by better forecasts done by Ikea. However, the inventory levels on stabile products at Bräntorp have decreased during the use of VMI and the APP tool. The Logistic Manager at Bräntorp proposes that the overall safety stock on finished goods have decreased by approximately 25 percent. Two of Bräntorp’s products have been at a stabile sales rate during the time period before and after the VMI implementation. The two products Ädel klarlack and Ädel mellanbrun have therefore been investigated in order to present the outcome of the VMI relationship with Ikea. The inventory level of finished goods on Ädel klarlack has decreased about 58 percent at Bräntorp. Furthermore, the inventory level of finished goods on Ädel mellanbrun has decreased about 35 percent. See figure 6.2 and 6.3 for graphic illustrations on the inventory decreases. According to the Logistic Manager, the decreases are a result of the VMI relationship and the APP tool. Due to the increase in information from Ikea transferred by the VMI file, Bräntorp has the ability to better meet the true demand from Ikea. This has resulted in the decrease in the inventory level on finished goods. According to the Logistic Manager at Bräntorp, there is no longer a need for Bräntorp to have high inventory levels when they know the demand and inventory levels at Ikea.

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Figure 6.2 Graphic illustration of the inventory decrease of Ädel klarlack at Bräntorp


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Figure 6.3 Graphic illustration of the inventory decrease of Ädel mellanbrun at Bräntorp

The turnover rate on the total finished goods inventory at Bräntorp has not changed after the implementation of VMI. It is still 7 times a year. However, the turnover rate on Ädel klarlack has not changed. It is still 11 times a year. The turnover rate on Ädel mellanbrun has increased from 5 to 8 times a year. (Logistic Manager, Bräntorp) The inventory levels at the distribution centers have been difficult to investigate due to lack of saved history data. However, an investigation on the products Ädel klarlack and Ädel mellanbrun is possible based on history data saved at Bräntorp. The outcome of the investigation is that the inventory level on Ädel klarlack at Ikea distribution centers has increased by 10 percent after the VMI implementation. The inventory level on Ädel mellanbrun has increased by 28 percent. (Logistic Manager, Bräntorp) According to the Business Support at Ikea, the increases may be due to the fact that the supplier controls the maximum inventory level at Ikea. Another possible explanation for the increases is the need for a high availability on the products that Bräntorp produces. It should be pointed out that during the measured period the sales on Ädel have decreased by 13 percent. Administration Ikea is using a self developed VMI application in order to send the VMI information to its suppliers. The only requirement for the supplier is that he can receive EDI information. The IT Supply Developer estimates that Ikea’s VMI application took approximately 1,500 hours to develop. Further, he acknowledges that every new VMI relationship involves a start up costs of 100 hours. Hence, the investment for Ikea to implement VMI with Bräntorp is 100 hours. Since the supplier controls the ordering process in a VMI relationship the order processing at Ikea is eliminated. This has led to a significant decrease in administration work for the Business Support at Ikea. In comparison between VMI and the OPDC


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ordering system, the VMI process decreases the administration work from 175 hours per year to 100 hours per year. According to the Business Support at Ikea, the administration after the VMI implementation is much smoother and easier. Due to some problems in transferring the VMI file to Bräntorp the work sometimes intensifies for the Business Support at Ikea. The Business Support believes that this problem will be solved when the new ERP system NeedCap will be implemented at Ikea during 2005. NeepCap will calculate the demand and match it to the supplier’s capacity (Ikea Intranet). At Bräntorp the administration costs related to the implementation of VMI increased due to costs of the ERP solution. Bräntorp had to consult their ERP provider, Intentia, in order to implement VMI. The cost of the VMI application was 700,000 SEK. However, the Swedwood group paid 40 percent of the cost. The cost of 58 consultant days is included in the amount. (Logistic Manager, Bräntorp) The amount of administration work in handling orders has not changed significant in comparison to before the implementation. This is due to Bräntorp’s efficient use of their ERP system. However, the amount of work concerning the construction of forecasts has decreased about 50 percent according to the Logistic Manager. This ends up in that approximately 120 hours a year, instead of 240 hours, are spent on working on forecasts. Furthermore, other work tasks have changed due to VMI. The Logistic Manager at Bräntorp implies that he nowadays spends about 192 hours per year on investigating the effected parameters such as safety stock and inventory levels at Ikea. This he did not do before the VMI implementation. The Logistic Manager at Bräntorp wants to highlight that thanks to the transparent information the production planner can detect “false orders” caused by incorrect EDI information. By this he means that sometimes the VMI information indicates that he needs to fill up the inventory when it actually has an appropriate level. Thanks to the visibility in demand he can examine what has caused the unexpected information and make a decision based upon this. Production The Logistic Manager at Bräntorp implies that the production is more flexible due to VMI and APP. Today, Bräntorp does not have any unexpected incoming orders due to the VMI ordering process. Before VMI, the incoming orders from Ikea were complicated to predict and fluctuated a lot. This led to difficulties in planning the production. Today, the production is better planned which results in a more smoothened production and a better work pace. This is according to the Logistic Manager, a result of the VMI implementation and APP. The employees also have a better understanding for what products that need to be produced. They are also able to decrease the set up time due to more accurate forecasts and production plans which increases the productivity (Figure 6.4 Graphic illustration of the productivity increase at Bräntorp). (ibid)


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Figure 6.4 Graphic illustration of the productivity increase at Bräntorp

Transportation The Business Support at Ikea proposes that the transport frequency has not changed significantly after the VMI implementation. However, the truck fill rate has increase due to better knowledge of the inventory levels and demand at Ikea. Prior the VMI implementation, Bräntorp co-operated the transportation together with two other Ikea suppliers. Thanks to VMI, Bräntorp nowadays can plan efficient truckloads by themselves. The Logistic Manager at Bräntorp agrees on that the amount of transportations has not changed after implementing VMI.

6.1.2 VMI Future According to Bräntorp AB According to the Logistic Manager at Bräntorp, the next objective in the VMI relationship is to decrease the inventory levels at Ikea’s distribution centers. Until 2005 Bräntorp has not focused on decreasing Ikea’s inventory levels. This is due to a focus on Bräntorp’s own activities. In the future, Bräntorp wishes to have all of its production on VMI. Today, the products delivered to North America are not using the VMI ordering process. According to the Logistic Manager at Bräntorp, this is due to a problem in Ikea’s ERP system. Due to the lack of an efficient ordering system to North America, Bräntorp suffers from high inventory levels and immense problems in the production planning of these products. Bräntorp also wishes to implement VMI to its own suppliers in order to smooth the production even more in the future.


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6.2 Outcome of VMI at Tibro Kontorsmöbler AB Tibro Kontorsmöbler is a Swedish subsidiary to Swedwood International, which is a part of the Ikea group. The company produces veneered furniture that is sold to private and public customers at Ikea stores in Europe, North America and Asia. Their bestseller is the chest of drawer Malm and they also produce the office furniture Effektiv and Gallant. (Master Production Planner, Tibro Kontorsmöbler) The company was established in the 1930’s and in 1968 they started to produce office furniture. The take-over by Swedwood took place in 1995 and since then the company has realized major changes in structure which has involved great investments in facilities and equipment. Today, Tibro Kontorsmöbler has a plant of 36,000 m², 255 employees and an annual turn over of 380 million SEK. (www.tibrokontorsmobler.se) The production of Malm represents about 60 percent of the total volume. Malm also represents the major volume of VMI articles at Tibro Kontorsmöbler. The product is a huge success at the Ikea stores and has a very high sale worldwide. The company’s annual turnover has increased by 60 percent during the use of VMI. Today, the sale is uniformed and hence very easy to predict. Tibro Kontorsmöbler is not the only supplier of Malm, three other suppliers are found in Lithuania, Germany and the US. (Master Production Planner, Tibro Kontorsmöbler) VMI relationship with Ikea was launched in 1999. At the beginning of the VMI relationship, most of the products were ordered through VMI, but today most products are ordered through transit. Previously, up to 70 percent were ordered through VMI. Today 20 percent of the volume is ordered through VMI. The reason for this decline in volume is not that Tibro Kontorsmöbler and Ikea are unsatisfied with the outcome of the relationship. In this particular case the transit distribution method is more profitable for Ikea. Transit is a form of cross-docking where the truck only stops at the distribution center for a short while and then directly continues to the stores. It is the stores’ demand of supply that determines if the product is ordered through VMI or transit. If a store can receive a whole pallet the products will be ordered through transit, otherwise it will be ordered through VMI. In the future, Tibro Kontorsmöbler and Ikea see an opportunity in having a combined process including transit and VMI directly to Ikea stores. The reason that this does not work today is that Ikea’s application is not able to combine VMI with transit. (ibid)

6.2.1 Effected Parameter Service Level In 1998, Tibro Kontorsmöbler had a service level of 97 percent. Today, the company has a service level of 99 percent. During this period of time, the company has invested in new equipment and done major changes in their production. Hence, it is hard to decide to which extend VMI has affected the increase in service level. However, The Master Production Planner at Tibro Kontorsmöbler estimates that approximately one


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percent of the increase in service level is due to VMI. In figure 6.5 Graphic illustration of the increase in service level at Tibro Kontorsmöbler, this change in service level is presented. (For information about the classification of products into service level S1; S2 and S3 see 6.1.1 Effected Parameters)

Service level at Tibro Kontorsmöbler

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Figure 6.5 Graphic illustration of the increase in service level at Tibro Kontorsmöbler Inventory The inventory level has decreased at Tibro Kontorsmöbler thanks to the implementation of VMI. Today, the company has more information about the customers demand pattern and has therefore a better insight in the demand of their products. This leads to a better understanding of the supply of products, which enables the company to make more accurate forecasts. This has resulted in a decrease in their safety stock as well as a decrease in their over all inventory level. According to the Master Production Planner, the decrease in raw materials inventory is approximately 10 percent, the decrease in finished goods inventory is approximately 10 percent and the security level has also decreased about 10 percent. However, work in process is not affected by the VMI relationship. As a result of the decrease in inventory level, the Master production Manager estimates that the cost for keeping stock also has declined by 10 percent. This is a direct saving of 400,000 SEK per year. The company’s total inventory turnover rate has increased by 20 percent during the time that they have used VMI. The Master Production Planner estimates that approximately 5 percent is a direct result from VMI. (Master Production Planner, Tibro Kontorsmöbler) Regarding the inventory level at the distribution centers, Ikea has not saved statistical data. Hence, the authors have not been able to use quantitative data in order to investigate the change at Ikea. However, the Master Production Planer at Tibro Kontorsmöbler estimates that the VMI relationship has resulted in a decrease of 20 percent at the distribution centers.


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According to the Master Production Planner at Tibro Kontorsmöbler and the Business Support at Ikea there are no set maximum and minimum level of inventory at the distribution centers. The Business Support at Ikea acknowledges that the reason for this decision is that Ikea recognizes Tibro Kontorsmöbler as a mature supplier that Ikea has great trust in. She also acknowledges that Tibro Kontorsmöbler is aware of the consequences of their product flow to the distribution centers. They will not deliver too much or run out of supply. Administration The administration at Ikea has declined thanks to VMI. The Business Support at Ikea acknowledges that her administration time for Tibro Kontorsmöbler has declined from 175 hours per year to 100 hours per year. She also says that VMI has changed her focus from ordering process to analyzing parameters. Prior to VMI, she was responsible for making the orders. Nowadays, Tibro Kontorsmöbler is responsible for this. She is focusing on keeping track of Tibro Kontorsmöbler’s sales, transportations and service level. This has resulted in that she has a better knowledge about what is actually happening at the market and at the distribution centers. The Business Support also wants to emphasize that Tibro Kontorsmöbler before the launch of VMI was a reliable supplier that Ikea had great trust in. The company had immense knowledge about their market and their flow of products. Without this knowledge VMI would never had been realized. (Business Support, Ikea) The administration at Tibro Kontorsmöbler has increased as an effect of the VMI relationship. Today, the personnel are working with order processing about 600 hours per year. This can be compared with a workload of 500 hours per year prior to the VMI relationship. The company’s invoice process has not changed as a result of VMI. (Master Production Planner, Tibro Kontorsmöbler) The forecasting process at Tibro Kontorsmöbler has changed as a result of VMI. Today, the company has more information to use as input to their forecasts. Hence, they have an opportunity to develop more accurate forecasts. Nowadays, the Master Production Planner compares the actual sale for the last weeks with Ikea’s predicted demand. This comparison is then used to adjust Tibro Kontorsmöbler’s forecast and has caused the forecasting error to decline. The new way of working has resulted in an increase in forecast processing costs. Today, the personnel are working approximately 100 hours per year on making forecast. Prior to VMI they were working about 50 hours per year with the forecasts. The Master Production Planner also wants to point out that the changes in their way of working has resulted in more interesting and challenging tasks for the employees. (ibid) As previously discussed in the case of Bräntorp, it took approximately 1,500 hours to develop the general VMI application at Ikea. Every new relationship also involves a start up costs of 100 hours. (IT Supply Developer, IKEA) Tibro Kontorsmöbler has not done any investments in order to realize the VMI relationship. The company had already invested in EDI before the launch of VMI and they did not need to upgrade


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their system in order to receive the VMI information. Further, the company is using an Excel application instead of a VMI application. Hence, the only investment cost for their Excel application has been the salary cost for the employees that developed it. According to the Master Production Planner, it took approximately 20 hours to develop the application Production The productivity at Tibro Kontorsmöbler has gradually increased since Swedwood’s take-over in 1995. Since then the company’s over all productivity has increased by 50 percent. As previously discussed, the company has done major changes in production and invested in new equipment. Therefore, it is hard to estimate to which extent that VMI has affected their productivity. However, the Master Production Planner calculates that approximately 5 percent productivity increase is a direct result from VMI. He also estimates that the company has faced an increase of 5 percent in machine utilization thanks to the VMI relationship. The set up times at Tibro Kontorsmöbler are not affected by the VMI relationship. The company has neither seen any changes in throughput time. (Master Production Planner, Tibro Kontorsmöbler) The Master Production Planner acknowledges the production at Tibro Kontorsmöbler to be smoother and more flexible thanks to the VMI information. He says that nowadays they have a better knowledge of the market and can better respond to changes in demand. This has resulted in a production planning that does not suffer from unexpected orders that need to be prioritized. The Master Production Planner acknowledges this to be one of the major benefits of VMI. Transportation It is Ikea that owns the transportations from Tibro Kontorsmöbler to the distribution centers. However, it is Tibro Kontorsmöbler that schedules them. VMI has enabled the company to better coordinate the transportations to the distribution centers. However, the Master Production Planner and Business Support acknowledge that the number of transportations has not changed as a result from VMI. The reason that the number of transportations has not declined is that some markets are hard to incorporate into the transportation matrix.

6.2.2 VMI Future According to Tibro Kontorsmöbler AB In the future, Tibro Kontorsmöbler wishes to implement VMI directly to Ikea stores. This will enable the company to realize the benefits from VMI as well as the benefits from transit. The main profit for Tibro Kontorsmöbler will be that the company can incorporate all of their production into VMI. Such incorporation will help them to better plan their production. In the long run this would increase their productivity, set up times and machine utilization. The Master Production Planner implies that the administration costs will increase if they implement VMI to Ikea stores. He estimates that if they incorporate 15 stores to the VMI relationship it will cause an increase in order processing costs by 40 percent. It


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will also require a new method of working when it comes to making forecasts. However, the Master Production Planner says that it is difficult to do an educated guess on how much the forecasting process costs will increase. VMI to Ikea stores will also require Tibro Kontorsmöbler to invest in a VMI application. The Master Production Planner state that their Excel solution can handle VMI information from three or four stores, but if the number exceeds four stores, they must invest in a system solution. Their ERP system provider, Jeeves, estimate that such a VMI application will cost approximately 300,000 SEK. According to the Master Production Planner, the number of transportations will increase if they implement VMI directly to the stores. The inventory level needs to be much lower at the Ikea stores then at the distribution centers. Hence, Tibro Kontorsmöbler needs to increase their number of transportation in order to keep the service level at 99 percent. He also acknowledges that Tibro Kontorsmöbler must increase their safety stock as well as their over all inventory level in order to keep the service level. On the other hand, Ikea will not have to keep any inventory at their distribution centers.

CHAPTER 7 ANALYZES OF THE CASE STUDIES

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7 ANALYZES OF THE CASE STUDIES In this chapter the authors analyze the case studies. They compare their findings from the case studies at Bräntorp AB and Tibro Kontorsmöbler with the findings of the benchmarking studies and the literature. This is finished off by a chapter summary consisting of two tables showing how performance measurements have changed due to the VMI relationships.

7.1 Service Level The main focus at Ikea is the service level and the on-shelf availability at the stores. This focus has led to the dividing of the four service level categories of products. The focus on the availability at Ikea affects their suppliers. The suppliers know that they must be able to deliver to Ikea according to the target of each service level category. This has led to an increase in the need of transparent information from Ikea to its suppliers. The transparent information must be detailed and accurate in order to make an increase in service level. The information in a VMI relationship is detailed and contains of inventory level, forecasts and sales figures. A VMI relationship will increase the information flow as well as the service level according to Kuk. This is corresponding to the findings of the benchmarking studies and the case studies. The findings of the case studies indicate that one opportunity for the supplier is to increase its service level toward his customer. According to the authors, this outcome of the VMI relationship is a significant benefit for both the supplier and the customer. There is no indication in the literature, benchmarking studies or case studies that a decrease in service level will occur in a healthy VMI relationship. When implementing VMI the risk of stock outs in the supply chain reduces according to the findings of Christopher. This is in accordance to the case studies that indicates on an increase in service level which leads to fewer stock outs at the distribution centers. The benchmarking studies also show on a lower risk of stock outs due to VMI. According to Kuk, the supplier in a VMI relationship will be more able to construct accurate forecasts based on the information transferred in the relationship. This is corresponding to the case companies that highlight that after implementing VMI their ability to construct accurate forecasts have increased significantly. This ability leads to a more flexible and better planned production, which results in an increase of service level. The case companies also acknowledge, in accordance to Kuk, that they are more able to respond to customer demand due to the VMI information. According to the benchmarking studies, the increase in service level occurres shortly after the VMI implementations. This finding is also confirmed by one of the case companies. The authors highlight that the accuracy of the transparent information between Ikea and its suppliers is of great importance in a VMI relationship. This is in order to achieve an increase in service level when implementing VMI.


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According to Pohlen & Goldsby, VMI leads to a possible increase in sales due to the increase in service level. The case company study at Tibro Kontorsmöbler indicates on a sale increase after implementing VMI. The authors acknowledge this to be caused by a shift in end customer demand and not by the VMI relationship. In disagreement to Pohlen & Goldsby, the case study at Bräntorp shows on a decrease in sales volume in the investigated products. This decrease is not due to poor order fulfilment because the service level has increased during the VMI relationship. The authors acknowledge that this decrease is also caused by a shift in end customer demand at the Ikea stores.

7.2 Inventory In next coming years, Ikea has an objective to increase their sales volume by 10 percent per year. This shall be achieved without an increase in logistical costs. Ikea recognizes that the best way to cut logistical costs is to reduce inventory levels in the supply chain. According to Waller et al, VMI is a good strategy in order to lower the inventory levels at both the customer and the supplier. VMI leads to a great decrease in inventory level. The decrease in inventory level is due to the increase in information flow. Lapide’s findings indicate that a decrease in inventory level at the customer is due to the fact that the customer does not keep more stock than needed. By this he means that the safety stock decreases due to the VMI relationship. This is in accordance to the benchmarking study at Volvo Powertrain where an inventory reduction of 67 percent was achieved. It is also in accordance to the benchmarking study at Procordia Food that showed on an inventory decrease of 30 percent at their customer Semper. Ikea Inventory Due to the lack of saved historical data of the inventory levels at Ikea’s distribution centers, the outcome of the VMI relationships is difficult to analyze. The inventory figures saved by the supplier Bräntorp indicate on an inventory increase at Ikea by 10 percent on Ädel klarlack and 28 percent on Ädel mellanbrun. This is in disagreement to the benchmarking studies and the findings of Lapide. However, the second case company, Tibro Kontorsmöbler, acknowledges that their inventory levels at Ikea have decreased by 20 percent. As a consequence, the storage space cost has declined by 20 percent, the cost for keeping inventory has declined by 20 percent and the tied up capital have declined by 20 percent. This is a large saving at the distribution centers. The authors acknowledge that Ikea has not focused on the inventory levels in the VMI relationships. Ikea’s focus lays in keeping a high service level and on-shelf availability. In order to keep these parameters high the inventory levels must also be high. The authors insist that Ikea pay more attention to the inventory levels when implementing VMI. If Ikea wants to cut the logistic costs they have to start to focus on the inventory levels at the distribution centers. The authors believe that Ikea could decrease its inventory levels when using VMI. The authors acknowledge a possible reason to the absence of inventory reduction at Ikea. Ikea does not decide the maximum or minimum inventory levels at the distribution centers. Ikea claim that they trust their suppliers to make these decisions right. This may have caused the increase in inventory levels at Ikea. The suppliers are


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focused on keeping the service level and availability high towards Ikea due to Ikea’s focus on availability. The authors acknowledge another possible reason for the inventory increase in the fact that the case companies are both subsidiary to Swedwood International which is owned by Ikea. This leads to that both Ikea and the two case companies have the same profitability goal for the corporation. When Ikea implements VMI to a supplier outside the Swedwood Corporation, the supplier may not be able to make the right decisions about maximum and minimum inventory levels. The authors recommend Ikea to be straight forward on how the maximum and minimum levels shall be kept. The benchmarking study at ICA showed on a lack of feeling for the maximum level at the inventories by the suppliers. This resulted in an increase in deliveries from the suppliers. In the future, this could be the case for Ikea if the maximum and minimum levels are not set by Ikea. The benchmarking study at Volvo Powertrain shows that Volvo Powertrain jointly with its suppliers agrees upon the maximum and minimum levels. The outcome of the VMI relationships has been a 67 percent decrease in inventory level at the customer. The authors acknowledge that the inventory decrease is partly due to the involvement of Volvo Powertrain in the setting of maximum and minimum levels. The benchmarking study at Procordia Food also shows on a great descend in inventory level. Procordia also decides the maximum and minimum levels jointly with its customers. This is in accordance to the findings of Småros et al. As a consequence, the authors recommend Ikea to decide the maximum and minimum levels jointly with their suppliers or by themselves. According to the VMI handbook at Ikea, Ikea of Sweden shall be responsible for setting the maximum and minimum level. This is a contradiction to the findings of the case studies were there were no set maximum or minimum levels done by Ikea. The author highlight that it is of great importance to follow routines. If Ikea sets the maximum and minimum levels they will gain more control of the inventory level and a decrease in inventory levels can be achieved. Supplier Inventory At the case companies the inventory levels have decreased due to VMI. According to Lapide, the supplier in a VMI relationship is no longer forced to stock more inventory than needed. This is due to the higher flow of information from the customer. This is in accordance to the outcome of the studies were the inventory levels have been decreased by 10 percent at Tibro Kontorsmöbler and 58 percent on Ädel klarlack at Bräntorp. These decreases are due to more accurate forecasts provided by Ikea and information about the inventory levels at the distribution centers. This information helps the suppliers to plan their production better which results in that they produce only the needed products. According to the findings of Christopher, the outcome of a VMI relationship will be a reduction in inventory at the supplier. This is in correspondence to the case studies where there has been a 10 percent reduction in raw material inventory and finished


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goods at Tibro Kontorsmöbler. This reduction is due to the increase in information flow in the supply chain.

7.3 Administration The administration costs at Ikea, and its suppliers, involve order processing costs, forecasting costs and investments that are done in order for the companies to communicate. In the following section the authors will discuss how the VMI relationship will affect these costs. Order Processing Costs One of the major benefits of a VMI relationship is that duplication of work, related to the order processing, is eliminated in the supply chain. Previously, the Business Supports at Ikea were responsible for making the orders. Today, it is the supplier that is responsible for making the order proposal, which is automatically confirmed by the ERP system at Ikea. This has reduced the Business Support’s administrational work, regarding a specific VMI supplier, with approximately 40 percent. This finding is in accordance to Matsson as well as the result from the benchmarking studies. The implementation of VMI has also resulted in a change in the way of working for the Business Supports at Ikea. Previously, they were involved in the ordering process. Today, they are focusing on analyzing parameters such as service level, transportations and actual sale. This new way of working has also been pointed out as a direct result from the implementation of VMI at Volvo Powertrain. In accordance to Pohlen & Goldsby, the implementation of VMI will generate additional administration at the supplier. The company is taking over the ordering process from Ikea and will hence obtain a greater work load. The evaluation of case studies indicates that the increase in order processing costs will be higher at a company that uses an Excel solution than at a company that uses a VMI application. At Tibro Kontorsmöbler, the VMI relationship has resulted in an increase in order processing costs by 20 percent. At Bräntorp, who uses a VMI application, the increase is not that significant. Therefore, the authors imply that a VMI supplier should use a VMI application. They also want to highlight that both benchmarking companies, that have successfully implemented VMI, are using a VMI application. The benchmarking study at Procordia Food indicates that the decrease in order processing costs will be particularly high in a traditional ordering system that does not use EDI. In the VMI relationship between Procordia Food and Semper the supply chain has been able to decrease the administrational work with 40 percent, which can be compared to four employees. The authors recognize this to be a major reduction in order processing costs and that is a direct result from the use of EDI and transparent information.


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Forecasting Costs The VMI relationship will intensify the forecasting process at the supplier. In the case of Tibro Kontorsmöbler, the forecasting costs have increased by 50 percent. This increase comes from a new, more beneficial, way of working. The transparent information, which consists of Ikea’s sale and demand, gives the company more information to use as input to its forecasts. This has enabled the company to adjust the forecasts and reduces the forecasting error. On the contrary, Bräntorp has reduced its forecasting costs by 50 percent. However, the company acknowledges that they have not incorporated the VMI information into the forecasting process. Lapide implies that one of the major hazards in a VMI implementation is that the supplier will not incorporates the VMI information into its own forecast. He acknowledges that such a VMI relationship can never fully gain from all the production benefits that are associated with VMI. Therefore, the authors recognize that Ikea’s VMI suppliers must integrate the VMI information into their own forecasts in order to fully gain from the VMI relationship. The supplier must make use of the VMI information in short term as well as in long term in order to reduce the forecasting error. This will cause an increase in forecasting costs. Communication Investment The VMI information is sent to the supplier through EDI. Hence, the only requirement for a new VMI supplier is to be able to receive information through EDI. Ikea is developing its own ERP systems by themselves. Therefore, the required communication investment at Ikea has been the system developing cost for the transaction of VMI information. It took approximately 1,500 hours to develop the solution and a new VMI supplier is associated with an implementation cost of approximately 100 hours. The authors recommend that a VMI supplier invest in a VMI application. This type of ERP solution will involve high investments in form of implementation costs. In the case of Bräntorp, the VMI application from Intentia cost approximately 700,000 SEK. However, the authors acknowledge the benefits of such a solution to exceed the investment. A VMI application will gain the supplier in form of reduced administrational work and improved production planning. This is in accordance to the result from the evaluation of case companies and benchmarking companies. The authors also want to highlight that the use of an Excel solution may result in that the VMI relationship becomes dependent on the administrator’s personal knowledge. In such a case, the administrator may be the only employee familiar with the Excel solution. Hence, the company will struggle if he/she decides to leave the company. The problem of a VMI relationship that is depended on personal knowledge is one of the many reasons to why ICA decided to end all of its VMI relationships. Hence, the authors recommend all VMI suppliers to use a VMI application instead of an Excel solution.


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The evaluation of the case studies indicates that Ikea struggles with incorrect EDI information. According to Waller et al, trust to the transparent information is critical in a successful VMI relationship. The Business Supports at Ikea, as well as employees at the case companies, imply that occasionally the VMI information indicates that the supplier needs to replenish the inventory when it actually is at an appropriate level. This is not acceptable. Ikea must investigate what causes this problem and solve it. However, the authors want to highlight that due to the use of VMI information the supplier can notice this problem. He is well aware of the demand of products and inventory level at the distribution centers. Thanks to the transparent information, he can examine what has caused this unexpected information. If the same information causes “false” orders when using traditional order methods, this problem will never be detected. In a traditional relationship this type of unexpected order will be treated as emergency orders that have to be delivered. These will cause major disturbance in the production planning which will result in high set up costs and low productivity.

7.4 Production One of the major benefits of VMI is that the transparent information will damp down the bullwhip effect which will result in a more flexible production. Waller et al implies that thanks to VMI the supplier’s production will be much smoother with a large extent of smaller peaks and less uncertainty in demand. The benchmarking studies and case studies confirm this idea. All suppliers have acknowledged that the transparent information gives them valuable access to consumption information and the customer’s inventory level. This gives them an understanding about what and when they need to deliver to the customers. Hence, they can supply the customers with the right products at the right time. In a traditional relationship, the supplier has only access to the orders that a customer place. This makes it difficult for the supplier to plan his production efficiently. He can not optimize his set up times by bringing forward the supply or deliver the products at a later date then ordered. All benchmarking companies and case companies imply that thanks to VMI this is possible and they have therefore experienced a more flexible production with lower set up times. Regarding the change in productivity, both case companies have experienced a gain in productivity. In the case of Bräntorp, the company has accomplished an increase in productivity by 25 percent during the use of VMI. However, the authors emphasize that the company has also implemented a new planning tool called APP. This tool plans the production capacity by smoothening the machine utilization. It is therefore difficult to estimate to what extent the VMI relationship has resulted in a productivity increase. In the case of Tibro Kontorsmöbler, the productivity has increased by approximately 5 percent thanks to the VMI relationship. Regarding throughput time and machine utilization, Waller et al imply that the machine utilization will increase and the throughput time will decrease in a VMI relationship. At the case companies the machine utilization has increased. Tibro Kontorsmöbler recognizes a gain in machine utilization by 5 percent thanks to VMI. However, none of the companies have experienced a decrease in throughput time.


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According to Lapide, one of the major pitfalls in a VMI relationship is that the supplier does not incorporate the transparent information into the forecasting process. This will result in that the supplier’s production does not correspond to the true demand of products. In the long run this will affect the supplier’s ability to improve the production planning, which leads to all other benefits of VMI. One of the case companies, Tibro Kontorsmöbler, has incorporated the VMI information into its forecasting process. The other company, Bräntorp, has not. In a contradiction to research, it is Bräntorp that has gained most in productivity. The authors acknowledge that the reason for this is that Tibro Kontorsmöbler does not order enough products through VMI in order to fully gain from the relationship. They also imply that Bräntorp would improve their production planning if they incorporated the VMI information into their forecasting process. Therefore, the authors’ recommendation to a VMI supplier is to make fully use of the transparent information and incorporate the VMI information into the forecasting process. Threshold Production Volume of VMI In many cases, only parts of a supplier’s products are ordered through VMI. The supplier may have other customers that do not use VMI or have products that are ordered through another order method. This means that the supplier needs to set up his operations in a way that both VMI and non-VMI products are efficiently produced. The use of traditional order methods will cause difficulties in the production planning process. The production planner will not have full visibility in the demand of products and will therefore not be able to fully damp down the bullwhip effect. According to Småros et al, a supplier can benefit even from a partial increase in demand visibility. However, the benefits will become greater as the volume of VMI products increases. Vergin & Barr recognize the threshold volume of VMI to be 30-40 percent. This means that if a supplier does not reach a VMI volume of 30-40 percent it is likely that he will not be able to influence his forecasting process or production. In the case of Bräntorp, all of the company’s supply is ordered through VMI. At Tibro Kontorsmöbler, only parts of their products are ordered through VMI. Today, about 20 percent of the company’s volume is involved in the VMI relationship. In a contradiction to the threshold volume, defined by Vergin & Barr, Tibro Kontorsmöbler has been able to benefit from the VMI relationship. The authors acknowledge that one reason for this may be that previously approximately 70 percent of their volume has been involved in the VMI relationship. The improvement in production may be derived from this period of time. The authors recommend that a VMI supplier use VMI to as great extent as possible. The supplier’s production will improve if they order through VMI instead of OPDC/call off. Regarding the use of transit, the authors recognize that both the supplier and Ikea will benefit from a new ordering method that is a combination of transit and VMI.


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7.5 Transportation The transportation cost is according to Gunasekaran et al, the single largest component of logistic costs. Therefore is it of great importance that attention is paid to the transportation frequency and the use of full truckloads. At Ikea, the focus on transportation lays in carrying out full truckloads. The suppliers must order their carriers at the right frequency in order to fill the trucks. Waller et al imply that VMI helps the supplier to better plan and optimize his deliveries. Hence, VMI is a strategy to increase the rate of full truckloads. This finding is in correspondence to the outcome of the case studies. The case companies recognize that the rate of full truckloads has increased due to better knowledge of customer demand and inventory levels at Ikea. The VMI relationships have increased the information flow and accuracy of the information which have resulted in the increase in full shipment rate. The case companies as well as Ikea acknowledge that they have not been able to decrease the transportation frequency after the VMI implementation. Bräntorp has not been able to utilize the coordination of shipment from several Ikea suppliers after implementing VMI. Due to this, the transportation frequency did not decrease. The benchmarking study at ICA indicates on an increase in transportation frequency. This was due to the lack of knowledge of the right inventory level and EDI problems. It ended up in unloaded shipments that were sent back to the supplier which resulted in an increase in transportation costs. According to Waller et al, in short term the partly loaded shipments may increase due to the more frequent ordering process in a VMI relationship. This finding has not been proven at the case companies. They propose that the transportation frequency and the rate of full truckloads have not change after the VMI implementation. Ikea agrees in this statement. This is in accordance to the findings of Disney et al that imply that the transportation frequency will be the same in the short term. Further, Disney et al imply that in the long run the supplier will use fewer deliveries in a VMI relationship. This is in disagreement of the case study on the supplier Tibro Kontorsmöbler. The delivery frequency has not changed due to the VMI implementation six years ago according to both Ikea and the supplier. Therefore, the authors acknowledge that the transportation frequency does not change in the long run.

7.6 Effects of VMI to Ikea Stores Due to Ikea’s focus on keeping high service level and on-shelf availability the inventory levels at the distribution centers have increased in one of the case studies. A possible solution to the problem could be to implement a different VMI set up. This VMI set up will be based on that the supplier delivers directly to the Ikea stores and not to the distribution centers as it is today. According to Tibro Kontorsmöbler, this would be possible. The company acknowledges this to be an excellent opportunity to decrease the inventory levels at Ikea. However, the Master Planner implies that it will result in an increase in inventory level at Tibro Kontorsmöbler. The increase will be in order to


54

be able to keep the high service level towards Ikea since the inventory levels at the stores are much lower than at the distribution centers. However, the supply chain’s total inventory levels will decrease. The Master Planner at Tibro Kontorsmöbler also acknowledges that the administration costs will increase if VMI direct to stores is conducted. The costs will increase due to the increase of transparent information. The increase in information leads to new investments in ERP systems according to the Master Planner. Due to the increase in information the new VMI set up will require a new way of forecasting. This will lead to an increase in forecasting costs. It will also result in better knowledge about the customer demand. Hence, the production planning process will be improved and the company will gain in productivity. The frequency of transportation will increase, according to the Master Planner at Tibro Kontorsmöbler. This is because of the low inventory levels at the store which results in an increase in the amount replenishments in comparison to the distribution centers. This could be prevented if the supplier makes multiple replenishment stops at several Ikea stores. This is in accordance to the findings of Waller et al. If multiple replenishment stops are carried out, the rate of full truckloads will increase according to the Master Planner at Tibro Kontorsmöbler.

7.7 Chapter Summary In figure 7.1 and 7.2, the authors have summarized how the VMI relationships have affected the performance measurements at Ikea, Bräntorp and Tibro Kontorsmöbler.


55

Figure 7.1 Effected performance measurements at Bräntorp and Ikea

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56

Figure 7.2 Effected performance measurements at Tibro Kontorsmöbler and Ikea

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CHAPTER 8 DISCUSSION AND CONCLUSION

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8 DISCUSSION AND CONCLUSION This chapter starts by a discussion concerning the strengths and weaknesses of the thesis. Then the authors present their conclusions of the research. In order to fulfill the thesis’ purpose the authors also answer the research questions. The chapter ends with recommendations for future research.

8.1 Discussion It is difficult to perform a research that can be applied on a general basis. This is due to the complexity of reality. To draw conclusions from research is a challenge. The authors have throughout the research strived to stay objective. They acknowledge that there is a risk of that their own values have been included and weighted into the thesis. They are also aware of the fact that the findings in the benchmarking studies may not be able to be applied on Ikea and its suppliers. The outcome and benefits of a VMI relationship at one company may not be same at another company. This thesis has valid and reliable result due to the thorough benchmarking studies and literature studies that have been carried out by the authors. The benchmarking studies have given the authors new insights and a deeper understanding on how the logistic parameters will be affected by a VMI relationship. The benchmarking companies confirmed the findings of the literature studies. There was no contradiction in the found literature. This results in a high credibility in the conclusions. The authors have not had any personal interest in the conclusions of the thesis. They have not had any interest in guiding Ikea in any direction. This fact also results in a high credibility in the conclusions. The authors acknowledge that a weakness of this thesis is that the conclusions of the case studies are based on companies that are subsidiaries to Swedwood International. This can result in that the conclusion of this thesis can not be applied on a supplier that is not a Swedwood company. The authors are also aware of another weakness of this thesis, the lack of quantitative data from the distribution centers results in that there are parts of the conclusion that are based on qualitative data. Therefore, the conclusions may have been different if the authors had access to saved historical data. There is a lack of research and evaluations about existing VMI cases in published literature. The authors’ contribution to research about VMI is the conducting of an evaluation of two real cases. The authors have not made any assumptions on how a VMI relationship should work and what the outcome should be. They have made an evaluation based on two existing VMI relationships.


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8.2 Conclusion of the Thesis The purpose of the thesis is to investigate the benefits, and negative effects, that are to be obtained by Ikea, and its suppliers, after an implementation of VMI. The conclusion is that the supply chain will profit from VMI relationships. One of the major benefits is an increase in service level. Another benefit is an increase in productivity at the supplier. The research also indicates that there is a risk of an increase in inventory level at the distribution centers. However, this can be avoided if Ikea follows its routines and jointly with the supplier set maximum and minimum inventory levels.

8.2.1 Research Question 1 How will the supply chain’s logistic parameters be affected by the VMI relationships? The main focus at Ikea is to keep a high service level in order to attain high on-shelf availability at the Ikea stores. Hence, the main focus in their VMI relationships is to increase the service level. The research indicates that by implementing VMI the service level will increase. This is due to an increase in the flow of information, which will result in a better ability for the supplier to predict the demand of products. The authors want to highlight the importance of incorporate the VMI information into the production planning. The VMI information must be used to compare the actual sale with the forecast in order to decline the forecasting error. VMI is a SCM strategy to reduce inventory level in the supply chain. The research indicates that the inventory level of finished goods at the supplier will decrease in a VMI relationship. Both Bräntorp and Tibro Kontorsmöbler have been able to reduce their inventory level. However, at Tibro Kontorsmöbler the decrease is not that significant. At the distribution centers the research results is in disagreement. In the case of Tibro Kontorsmöbler the VMI relationship has resulted in a decrease of inventory level by 20 percent. However, in the case of Bräntorp the inventory level has increased. The authors recognize that this is due to the fact that no maximum and minimum inventory level is set. The benchmarking studies show that in successful implementations of VMI the supplier and customer have jointly agreed upon inventory levels. In the unsuccessful VMI relationship the companies had not set any inventory levels. In a VMI relationship the supplier is responsible for making his own orders. This results in that the ordering process at Ikea is eliminated. As a result, the employees will change focus from making orders to analyzing parameters. This will give them a better knowledge about the market and the supply chain’s flow of products. At the supplier, the administration will increase. This is due to the fact that the supplier is taking over the ordering process. The extend of the increase highly depends on how the supplier choose to apply the VMI information. If the supplier chooses to develop an Excel solution, he will experience a greater increase in administration costs then if he choose to implement a VMI application from his ERP system provider. Therefore, the authors


59

recommend the supplier to implement a VMI application. This will involve a higher investment, but the benefits will exceed the costs. This recommendation is also based on the risk of a VMI relationship that is depended on the administrator’s personal knowledge, when using an Excel solution. Thanks to VMI the supplier will gain in productivity at plant. These benefits will be further discussed in research question 2. According to the authors, a VMI relationship will not significantly change the number of needed transportations. However, the rate of full truck loads may be a little bit higher then today and the supplier will have a better opportunity to optimize his transportations.

8.2.2 Research Question 2 Will there be any benefits in the supplier’s production after a successful VMI implementation? In a VMI relationship, one of the major benefits is that the transparent information will damp down the bullwhip effect, which will result in a more flexible production. The transparent information will give the supplier access to consumption information and inventory level at Ikea’s distribution centers. Hence, the supplier will attain an awareness of what and when they need to supply Ikea. This will result in a more effective production planning. Hence, the production will be much smoother with a large extend of smaller peaks and less uncertainty in demand. In the long run, the supplier will gain in productivity and increase the machine utilization. During the use of VMI Bräntorp has increased their productivity by 25 percent. Tibro Kontorsmöbler has obtained an increase in productivity by 5 percent. However, the authors want to highlight that both companies also have done other investments. Hence, it is difficult to estimate the increase in productivity that is due to the VMI implementation.

8.2.3 Research Question 3 Shall all production, or just parts of the production, be a part of the VMI relationship? The research indicates that the production benefits will increase as the VMI volume increases. This also means that all of the supplier’s production does not have to be incorporated into the VMI relationship in order to obtain benefits. In the case of Bräntorp, the company orders all of their supply through VMI. At Tibro Kontorsmöbler only 20 percent is ordered through VMI. Even though, both companies have been able to increase their productivity. However, Bräntorp has gained most.


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Research recognizes the threshold volume of VMI to be 30-40 percent. In the case of Tibro Kontorsmöbler, the VMI volume is only 20 percent. Although, the company have been able to obtain benefits that is related to the implementation of VMI. However, previously the VMI volume was up to 70 percent. Therefore, the authors acknowledge that the benefits may be due to the former high volume on VMI. The authors also want to highlight that Tibro Kontorsmöbler may decrease their production benefits if they not attain a higher volume of VMI products.

8.2.4 Research Question 4 Shall the VMI transportations go to the distribution centers, or directly to the stores, in order to maximize benefits? The authors acknowledge that if Ikea implements VMI directly to the stores they will realize the benefits of VMI as well as the benefits of transit. However, the authors recommend that Ikea further investigate the impact of VMI directly to the stores before they make the decision. In figure 8.1, the authors present how the present VMI parameters will change if a VMI supplier chooses to implement VMI to Ikea stores.

Ikea Supplier Supply chainService Level

Costumer stock outs costs

Sales volume

Inventory

Raw material and component costs X

Finished goods

Working capital

Safety stock

Cost for keeping inventory

Cycle stock

Administration

Communication investment

Forecasting costs

Order processing costs

Production

Productivity X

Machine utilization X

Transportation

Distribution costs, short term X

Distribution costs, long term X

Figure 8.1 Change in VMI parameters


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8.3 Future Research In future research, the authors recommend Ikea to investigate the inventory levels at the distribution centers on products that are ordered through VMI. If data that includes historical inventory levels could be found, Ikea would be able to evaluate their VMI relationships more thorough. Therefore the authors insist that Ikea develop routines on how statistical data shall be saved and on how follow ups shall be performed. The authors also recommend that Ikea conducts a simulation on a VMI supplier’s production. This is in order to investigate and evaluate how VMI affects the production at the supplier. Such a simulation will only take the effects of VMI in to account. The simulation will therefore be able to answer the question on how VMI effects the production more accurate. Further, the authors recommend that Ikea develops a VMI solution that can be connected with the suppliers’ ERP systems. This would increase the willingness among the suppliers to implement VMI. In order to further investigate the benefits and non-benefits of VMI to stores, Ikea should start a pilot project. The project should include a supplier that supplies Ikea with a high frequency product. The supplier should receive VMI information based on four to five stores. The outcome of the project will indicate if there are benefits or non-benefits in delivering directly to the stores.

REFERENCES

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REFERENCES

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Riddals, C.E., Icasati-Johansson, B., Axtell, C.M., Bennett, S., Clegg, C. (2002). Quantifying the Effects of Trust in Supply Chains During Promotional Periods, International Journal of Logistics : Research and Applications, Vol. 5, No 3 Småros, J., Lehtonen, JM., Appelqvist, P., Holmström, J. (2003). The impact of increasing demand visibility on production and inventory control efficiency, International Journal of physical distribution and logistics management, Vol. 33, No 4 Vergin, R.C., Barr, K., (1999). Building Competitiveness in Grocery Supply Through Continuous Replenishment Planning: Insights from the Field, Industrial Marketing Management; 28, 145-153 Waller, M., Johnson, M.E., Davis, T. (1999). Vendor-Managed Inventory in the retail supply chain, Journal of Business Logistics; Vol. 20, No 1 Respondents Birgander, Per. Operating Manager, Trading Area Wood, Älmhult 2005-01-26 Bondesson, Jonas. Supply Planner, Ikea of Sweden, Älmhult 2005-01-26 Breman, Lena. Global Process Developer, Volvo Powertrain, Skövde 2005-04-11 Grenmyr, Paul. Logistic Manager, Bräntorp AB, Nybro, 2005-02-24, 2005-04-18 Johansson, Arne. IT Supply Developer, IT Supply, Älmhult, 2005-04-27 Johansson, Bo. Master Production Planner, Tibro Kontorsmöbler AB, Tibro, 2005-03-14, 2005-04-19 Larsson, Pär. Replenishment Manager, ICA, Västerås, 2005-03-18 Lundbladh, Ola. Business Support Group Manager, Distribution Service North, Älmhult 2005-02-01 Månsson, Thomas. Production Planner, Procordia Food, Eslöv, 2005-04-07 Olsson, Ann. Business Support (Tibro Kontorsmöbler), Trading Area Wood, Älmhult 2005-01-27, 2005-04-27 Steen, Johanna. Business Support (Bräntorp), Trading Area Wood, Älmhult 2005-04-22 Internet sources www.procordiafood.com (2005-04-10) www.tibrokontorsmobler.se (2005-04-26) www.volvogroup.com (2005-04-15) Other sources Dahlvig, A. (2000), 10 jobs in 10 years, Ikea Intranet Ikea Intranet (January to June 2005)

APPENDIX

APPENDIX A Ikea Distribution Methods

Logistics-ITAB

SUPPLIER

ORDERDELIVERY

WAREHOUSE

ORDER DELIVERY

CALL OFF

STORES

SUPPLIER

WAREHOUSE

ORDER:DELIVERY

ORDER DELIVERY

OPDC

STORES

SUPPLIER

DD

STORES

ORDER:DELIVERY

SUPPLIER

WAREHOUSECP POINT

ORDER:

TRANSIT

STORES

DELIVERY

DELIVERY

Sales & stockInformation

DELIVERY

SUPPLIER

VMI STORE

STORES

Distribution MethodsTraditional Methods Advanced Methods

APPENDIX

APPENDIX B Daily VMI file

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APPENDIX

APPENDIX C Interview Form for the Employees at Ikea The interview form has been used in order to develop the purpose of the thesis. It is translated from Swedish.

1. What are your responsibilities at Ikea? 2. What are your personal experiences from VMI relationships? 3. Describe the VMI process at Ikea. 4. What is the VMI interface for the supplier? 5. How many relationships is Ikea involved in today? 6. On what ground does Ikea choose their VMI suppliers? 7. Does Ikea plan to expand its VMI relationships? 8. What are the benefits of VMI for Ikea? 9. Do you see any negative effects of VMI? 10. Has Ikea demonstrated any benefits from VMI? 11. Who do you recommend us to talk to about VMI at Ikea? 12. What are your thoughts about the future of VMI at Ikea?

Interview Form for the Employees at Ikea The list of themes has been used in order to investigate how the VMI relationships have affected Ikea. The themes were used as a base for discussion. The interview form is translated from Swedish. • Has the VMI supplier’s service level changed during the use of VMI? • How has the administration process at Ikea changed as an effect of the VMI relationship? • Did Ikea need to do any investments in order to implement VMI? • Have the inventory level at the distribution centres changed as an effect of the VMI

relationship? • Have the number of transportations changed as an effect of VMI?

APPENDIX

APPENDIX D Interview Form for the Benchmarking Companies The interview form has been used in order to investigate how the benchmarking companies have evaluated their VMI relationships. This particular form was used for the interview with Procordia Food, but the same form was used at ICA and Volvo Powertrain. The interview form is translated from Swedish. General Information about VMI at Procordia Food

1. What are your responsibilities at Procordia Food? 2. Describe the VMI process at Procordia Food? 3. Did Procordia Food have to do any investments in order to implement VMI? 4. Who initiated the VMI relationship, Procordia Food or the customer? 5. When did Procordia Food implement its first VMI relationship? 6. How many VMI relationships are Procordia Food involved in today?

Evaluation of the VMI relationship at Procordia Food 7. Is VMI profitable for Procordia Food? 8. Have Procordia Food done any evaluations of their VMI relationships? 9. Have Procordia Food’s parameters changed due to the relationship and which

parameters have changed the most? 10. How have Procordia Food measured these effects? 11. Have the administration process at Procordia Food changed due to the VMI

relationship? 12. Do you know if your VMI customers have experienced any changes in tied-up capital,

sale etc? 13. Which parameters do you recognizes to be the most important ones to investigate in an

economic evaluation of a VMI relationship? 14. What are your thoughts about the future of VMI at Procordia Food?

APPENDIX

APPENDIX E Interview Form for the Case Companies The interview form has been used in order to develop the purpose of the thesis. This particular form was used for the interview with Bräntorp, but the same form was used at Tibro Kontorsmöbler. The interview form is translated from Swedish.

1. What are your responsibilities at Bräntorp? 2. Describe the VMI process at Bräntorp AB? 3. What are the benefits of VMI for Bräntorp? 4. Do you see any negative effects of VMI? 5. Describe the transferring of information from the VMI file to Bräntorp’s ERP system? 6. Have Bräntorp experienced any benefits, or non-benefits, in production that is due to

the VMI relationship? 7. Have Bräntorp investigated the outcome of the VMI relationship? 8. What are your thoughts about the future of VMI at Bräntorp?

Interview Form for the Case Companies The interview form has been used in order to investigate how the VMI relationship has affected the supplier. This particular form was used for the interview with Bräntorp, but the same form was used at Tibro Kontorsmöbler. The interview form is translated from Swedish. Administration

- Has the order process at Bräntorp changed as an effect of the VMI relationship?

- Has the forecast process at Bräntorp changed as an effect of the VMI relationship?

- Has the invoice process at Bräntorp changed as an effect of the VMI relationship? Inventory Level

- Has the inventory level of raw material changed as an affect of the VMI relationship?

- Has the inventory level of finished goods changed as an affect of the VMI relationship?

- Have work in process changed as an affect of the VMI relationship?

- Has the inventory turn over changed as an affect of the VMI relationship? Service Level

- Have Bräntorp’s service level changed as an effect of the VMI relationship? Production

- Have the plant’s productivity changed as an effect of the VMI relationship?

- Have the machine utilization changed as an effect of the VMI relationship?

- Have the throughput time changed as an effect of the VMI relationship?

- Have the percent idle time changed as an effect of the VMI relationship? Transportation

- Have the number of transportations to the distribution centers changed as an effect of the VMI relationship?

- Have VMI resulted in partly full truckload shipments?

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