Vendor Managed Inventory Vendor Managed Inventory is a means of optimizing supply chain performance, in which the manufacturer is responsible for maintaining the distributors inventory levels. The manufacturer has access to the distributors inventory data and is responsible for generating purchase orders. During this process, the supplier is guided by specified objectives regarding inventory levels, fill rates, and transaction costs. A typical business model without VMI entails that when a distributor needs product, they place an order against a manufacturer. The distributor is in total control of the timing and size of the order being placed. The distributor maintains the inventory plan.
However, when utilizing the Vendor Managed Inventory model, the manufacturer receives electronic data, usually EDI (Electronic Data Interchange) or via the internet, that tells him the distributors sales and stock levels. The manufacturer can then view every item that the distributor carriers as well as true point of sale data. The manufacturer becomes responsible for creating and maintaining the inventory plan. Under VMI, the manufacturer generates the order, not the distributor. Note that VMI does not change the 'ownership' of inventory. It remains as it did prior to VMI.
VMI consists of two EDI transactions that are the basis of the process: o Product Activity Record; the data contained in this document are sales and inventory information. This is the primary transaction o The second transaction contains and deals with the product numbers and the quantities ordered by the supplier as the customer requests In all of its forms VMI should be about improving visibility of demand and product flow in a supply chain, facilitating a more timely and accurate replenishment process between a supplier (vendor) and an inventory site (customer, distributor, distribution center, etc... ). The application of VMI can be at any point within a supply chain: Manufacturer - Wholesale Distributor Wholesale Distributor - Retail Manufacturer - End Customer Wholesale Distributor - End Customer Manufacturer - Internal Inventory Sites Inventory is the proxy for information. In the absence of timely and accurate consumption data, each node in the supply chain compensates for the lack of information with inventory. Not only does poor information flow build supply chain inventories, but it also restricts each company's ability to react to increases in demand, causes extended outages, service interruptions and lost sales.
As actual demand for products is disseminated up the supply chain in a more real time environment, the more closely aligned production is with demand. As the gap between production and demand diminishes, so to does supply chain inventories and service level interruptions. The ultimate goal is supply chain excellence, as defined by service, speed and cost. Delivering the best service at the point of consumption in the least amount of time at the lowest total cost. The result is a supply chain that has an automated, timely flow of information triggering replenishment activities that anticipate demand accurately.
The factors needed to be considered to determine if a company should utilize a VMI program, include the following: o Labels are a crucial link in your supply chain; how much responsibility for their management are you willing to delegate to your supplier? o Maintaining a reliable supply of your labels will necessitate an open flow of information between you and your supplier. What is your comfort level with sharing what is often considered sensitive information with them? o The flow of VMI information is a two-way street. What kinds of tools and reports will you need to monitor label availability and vendor performance? o Practice makes perfect. What is your prospective VMI partner's experience in servicing businesses with needs similar to your own? The benefits of VMI are: o Lower customer inventories o Lower supplier inventory from better forecast so Lower administrative costs o Increased sales Done effectively, VMI delivers tangible results throughout the supply chain. As these concepts and practices extend beyond the manufacturing floor down through the supply chain, VMI is the enabling process to drive out costs and time. To ensure you realize the full impact of the VMI experience, follow these keys to success: 1.
Set, review and maintain performance goals 2. Manage all SKU's (Stock Keeping Units) through VMI to minimize supply chain transactions 3. Spend the time and effort up front to ensure data accuracy 4. Utilize local market intelligence to augment the automated replenishment decisions 5.
Conduct periodic performance reviews 6. Use the metrics to find cost and inefficiencies, then work together to eliminate.