Vendor Managed Inventory or ”Order Only” customers? An investigation of customer suitability for delivery agreements at Linde Gas

Linde Gas is one division belonging to The Linde Group, which is an industrial gas and engineering company. With its 53000 employees in 70 countries and related sales of about €12 billion, The Linde Group is a world leading company. Linde Gas has two different types of delivery agreements which are seen as profitable; the customer can call in himself to place an order (”Order Only” customer) or the customer can have a VMI (Vendor Managed Inventory) agreement. In the latter Linde Gas is initiating the deliveries. The purpose of the thesis is to analyze these delivery agreements in order to give recommendations about which delivery agreement that would be best for different customers of liquid products at Linde Gas. Planning and distribution costs for a specific customer as well as the revenues will be taken into consideration. A mixture of a descriptive and comparative study together with case studies has been used as method in this thesis. A descriptive study was used in order to identify and describe the factors that are influencing the planning- and transportation costs and the revenues. Examples of such factors are planning time needed for different types of deliveries, costs for a run-out in the customer’s tank and the relationship between Linde and the customer. For these factors a description of how they influence the costs and revenues has been made. The method used for this thesis also has a comparative element. When describing how the factors explained above influence the costs and revenues a comparison has been made on how these influences are different for customers with delivery agreements ”Order Only” and VMI. The factors investigated are only the factors for which the influences on the costs and revenues are different depending on which delivery agreement the customer has. (There is no need to investigate those factors affecting the costs and revenues to the same extent for both delivery agreements.) Techniques for data collection that have been used are interviews, analysis of internal documents and usage of LCS (Liquid Control System), the logistics IT-system at Linde Gas where data about deliveries are saved. The outcome of the thesis is a check-list that can be used when deciding which delivery agreement that a specific customer should have. One important conclusion is that the planning horizon should be extended if the advantages of a VMI system are to be realized. Finally, suggestions about how the organization dealing with these delivery agreements can be improved are discussed.