Vendor Managed Inventory

What Vendor Managed Inventory?

Vendor Managed Inventory is a means of optimizing the Supply Chain where the manufacturer is responsible for maintaining the distributors or suppliers levels of inventory. This is facilitated by allowing the manufacturer access to the distributors or suppliers inventory data, the manufacturer is then responsible for replenishing the stock levels by raising purchase orders as required.
This differs from typical inventory management by placing the responsibility of maintaining the inventory with the consumer. This is facilitated by allowing the manufacturer access to the distributers data. Usualy in Vendor Managed Inventory scenarios the manufacturer receives sales and stock electronic data (EDI or XML over the internet) and then manages the replen plan.

The benefits of Vendor Managed Inventory

There are many benefits of VMI here are some examples:

• Closer relationship between supplier and consumer including a level of agreed trust (eg over the data.)
• Reduced data entry errors due to Electronic exchange of information.
• Better service to the consumer as they set what they need when they need it.
• The Distributors costs will be less as the planning and ordering cost will be shifted to the Manufacturer.
• Better forecasting due to the manufacturer having better visibility
• Visibility to Stock Levels helps to identify and manage priorities

There are also some Pitfalls of Vendor Managed Inventory

• EDI and data exchange can be complicated to setup and costly to maintain. They also require a level of trust between companies that may not be present from the outset.
• As with any change to the business, all employees who are involved must be willing participants.
• Modifications to the normal ordering pattern must be properly communicated in a timely manner.
• In the Service Level Agreement, a process must exist to cover overstocks and obsolete inventory.