Note the applicable conditions of VMI)

Theoretically, the VMI project applies to various products with stable demand and supply. However, jevons pointed out that it is not suitable for the implementation of VMI for IC Devices with high value. "IC delivery cycle is long, inventory value is high, and the risk for implementing VMI, OEM/EMS and suppliers is too high ." At present, OEM and EMS companies usually divide raw materials into standard parts and non-standard parts when implementing VMI. This is mainly from the perspective of risk sharing. "When demand changes, the buyer generally does not have to take any responsibility for the inventory backlog of standard parts, but the buyer of non-standard parts must assume certain responsibilities in accordance with the provisions of the contract ." Jevons said.

Accurate demand prediction is the core

As a means of supply chain optimization, VMI emphasizes the balance between supply and demand in the supply chain. There is no backlog of inventory or shortage in the entire supply chain, and products flow rapidly in the supply chain. the benefits brought by this will be shared among all members of the supply chain to achieve a win-win situation. However, to optimize the supply chain and reduce the overall inventory, a core issue is how to ensure the accuracy of demand prediction. On the forum, we have shown our attention to this issue. A self-proclaimed "black noodle scholar" Reader believes: "If the supply and demand forecasts are inaccurate, the goods will always be in the hands of suppliers, distributors, or purchasers. Sooner or later, the entire supply chain will be affected ."

To address the demand forecast issue, jevons puts forward three suggestions: first, adopting more scientific forecasting methods. The common method is to average the weekly demand data, and use the average result as the base number multiplied by the number of demand weeks covered by the elastic stock. "Using this data as the basis for suppliers to prepare for inventory can buffer the uncertainty caused by sudden increases or decreases in demand ". When introducing the company's experience in implementing VMI, a reader named Winslow also talked about the application of this method. "We make a weekly prediction, send the information to the supplier, and take responsibility for the prediction during the processing period," he said ."

Second, information should be communicated in a timely manner. Jevons pointed out: "It is critical to transmit information in a timely manner and take remedial measures. After the forecast changes, the buyer should promptly inform the seller so as to take timely measures to avoid large losses. The third is to establish strategic partnerships between buyers and sellers. In this way, when the demand changes, both parties will be aware of the risks. Jim of Sihai electronics pointed out: "To succeed, OEM/EMS companies and suppliers must have a complete coordination mechanism for demand changes, so as to minimize the probability of sluggish inventory ."

Responsibilities and risk sharing should be clear

From the VMI Operation Model diagram, we can see that the division of goods property rights and risks takes place only when OEM/EMS companies propose goods from the warehouse center. On the surface, compared with the traditional inventory model, OEM and EMS companies reduce a lot of risks, but this is only one aspect of the problem. In practice, the supply and demand sides negotiate the responsibility and risk sharing of both parties when signing the VMI agreement. Jevons pointed out: "Although VMI is beneficial to both parties, the implementation of VMI requires a certain amount of cost and bear unforeseen risks ."

He believes that the costs and risks arising from the implementation of VMI should be shared by the buyer and the seller. "The loss of either party may lead to a premature failure of VMI, and may even affect the further cooperation between the two parties. The buyer and the seller must maintain a strategic cooperation attitude during the negotiation of the VMI, and strive for a win-win situation without any sequelae ."

In addition, as the initiator of the VMI project, OEM and EMS companies should strengthen their own VMI risk management. Jevons suggests: "OEM and EMS companies should use advanced tools such as water fall chart to establish an effective risk management system and track the risks arising from VMI every week, confirm with suppliers and take various measures to reduce risks in operation."

In the Risk Sharing of VMI, jevons emphasizes the importance of contract. "A contract plays an important role in the implementation of VMI. Even the partners in the strategic partnership are essential ." He pointed out that "clearly and meticulously specifying the responsibilities of both parties is one of the core contents of the VMI contract, which is often the most important part in the negotiation of the VMI contract ."

Combined with China's national conditions, the best way to absorb VMI

When talking about how to promote the implementation of the VMI project in China, some readers believe that the immature information environment restricts the implementation of the VMI project in Chinese enterprises. Readers of youyoufei pointed out: "If the platform is not connected to the partner smoothly, the VMI project cannot be effectively implemented. Chinese electronic enterprises generally have a low degree of informatization, which restricts the implementation of VMI in Chinese electronic enterprises for a period of time ."

However, jevons has different views on this. He said: "The essence of VMI is that suppliers have prepared a certain inventory in advance based on the buyer's Production Demand Forecast, the buyer can supply goods in a timely manner when necessary. As long as this operation can be achieved, it is called VMI. When the logistics volume is small, the customer can also implement VMI by phone or fax. Of course, with a good information platform, VMI will become more powerful, but it is not a necessary condition for the implementation of VMI ."

But this idea was opposed by Jim. "The real VMI is to reject manual information communication. Only the electronic means such as EDI or Inernet can carry out the VMI in the true sense ." Jim pointed out, "the reason why VMI can bring benefits to all parties in the supply chain is that they use electronic means such as EDI or Inernet to improve the information flow mode and the accuracy of demand prediction, it eliminates many ineffective labor in the supply chain and reduces the overall inventory in the supply chain."

What is the real VMI? Although there is no definite answer in this discussion, it is clear that the advanced concepts of the VMI model are worth learning. We all agree that Chinese enterprises should absorb the essence of VMI, rather than necessarily care about the form they adopt. Promote the VMI and establish the VMI model with Chinese Characteristics Based on the current situation. Jevons pointed out: "What we can do now is not a perfect VMI, but to learn the essentials and concepts of VMI and change our existing supply model ." A complete VMI contract shall include the following:
1. Definitions of specialized terms involved in the contract.
2. The effective date and term of the contract.
3. a detailed description of the operation method.
4. Production Forecast Information and form order terms.
5. Provisions on the delivery date.
6. warehousing terms.
7. Shipping and invoice terms.
8. Inventory quantity regulations.
9. Terms of product validity period.
10. the buyer and the seller's liability terms.
11. contract termination method.
12. Force majeure clause.
13. The legal documents and dispute handling methods are applicable.
14. Appendix to the contract. A list of materials that implement VMI is usually listed, including the minimum packaging volume of each material and the inventory replenishment cycle.