Cyclic Consumption and Replenishment Decisions for Vendor-Managed Inventory of Multisourced Parts in Dell’s Supply Chain

Multisourcing and vendor-managed inventory (VMI) programs with percentage supply allocations (PSAs) are two common practices in the electronics industry. A PSA is a prenegotiated percentage of a multisourced part’s total demand, which should be provided by a supplier. For parts within Dell’s supply chain for which these practices are applicable, we provide a framework to implement pull-based replenishments, verify its feasibility, and demonstrate the potential benefits via simulation. Specifically, we investigate two decisions to meet customer demand and PSAs with minimal inventory: (1) how to allocate actual customer demand among multiple suppliers, and (2) what guidelines Dell should specify to suppliers for VMI hub replenishments. For demand allocations, we propose a consumption cycle based on the PSAs. We consider a heuristic replenishment policy and develop an algorithm to compute the policy parameters, which can be used as supplier guidelines. The proposed approach presents a significant opportunity for cost savings. Dell used the results of this project (1) to address skepticism toward a pull-based approach in managing VMI replenishments, (2) to gain stakeholder support to implement a pull-based approach, and (3) to emphasize the need for a change in Dell’s philosophy on managing demand allocations to suppliers and VMI hub replenishments.