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ced total logistics cost and improved cashflow The binding of customers to vendors – once relationship is established, customers will be reluctant to endure the amount of work needed to switch vendors 12 Currently, most automotive manufacturers in China consider Consignment Inventory as VMI ?VMI are usually used as a method to realize ―zero inventory‖ – while the parts are sitting in manufacturer’s warehouse, vendors are forced to finish the transfer if parts ownership until assembly is done ?Consignment Inventory, on the other hand, are the exact practice of most vendors and manufacturers – vendors are not involved in inventory and logistics decisions Challenges of VMI in China 13 This concept/belief reveals the transactional relation between suppliers and manufacturers ? Pricedriven sourcing decision without indepth understanding of cost structure ? Logistics cost and material cost are monly added up as a lumpsum ―CIF price‖ ?Few suppliers are willing to ―open cost‖ to their customers unless margin is very thin ? Supply chain management targets forcefully drive suppliers to reduce price to maintain business relation ? Payment terms and payment situation constrain suppliers from getting inventory information under consignment inventory ? Inventory movement means actual consumption of products, immediately starting the manufacturer payment cycle ? Neither manufacturers and suppliers make significant investment in building EDI to facilitate data sharing Without transparent data sharing and collaborative supply chain planning, loselose situation arises due to higher operation (transaction) cost 14 To avoid the potential conflict between manufacturers and suppliers, an independent third party can be employed to help manage the VMI initiative ?Thirdparty consolidates the shipment from various suppliers ?Third party facilitate the information exchange between manufacturer, consolidation and loading center, and the suppliers ?Information is neutral to both suppliers and manufacturers, signaling transfer of ownership according to preagreed terms ?Thirdparty can help manage inventory, unpacking, kitting, sequencing and delivery to line, milkrunning the inbound parts and potentially placing purchase order on manufacturers’ and suppliers’ behalf ?Ownership remains unchanged before or after VMI is implemented 15 However, internal resistance against outsourcing the VMI service remains generally very strong ? No mon understanding of how thirdparty can help smooth the VMI operation ? Staff currently in charge of inbound logistics are afraid of losing jobs ? General belief to hold potential ―profit‖ within the pany ? No cost benchmark to pare the overall cost under thirdparty management ? Resistance to share inventory data with thirdparty ? A cultural adjustment as well as a significant reanization of everyday job duties is required to acpl