What is Vendor Managed Inventory?
Continuous Replenishment, Collaborative Planning, Supplier Managed Inventory, Vendor Managed Replenishment, Supplier Assisted Inventory Management...
Particular industry segments sometimes use different terms to describe essentially the same process as Vendor Managed Inventory (VMI). Other terms sometimes used include:
Each of these terms refers to a process that is very similar to VMI.
By any name, VMI is a key element of:
Vendor Managed Inventory (VMI) is a streamlined approach to inventory management and order fulfillment. VMI involves collaboration between suppliers and their customers (e.g. distributor, retailer, OEM, or product end user) which changes the traditional ordering process.
Instead of sending purchase orders, customers electronically send daily demand information to the supplier. The supplier generates replenishment orders for the customer based on this demand information. The process is guided by mutually agreed upon objectives for the customer's inventory levels, fill rates, and transaction costs.
The goal of VMI is to align business objectives and streamline supply chain operations for both suppliers and their customers. The business value is a direct result of increased information flow:
- Improved Inventory Turns
- Improved Service
- Increased Sales
Business Results of Vendor Managed Inventory:
Two Year Cumulative Study
This two year cumulative study proves VMI is an effective tool to improve sales, increase inventory turns, and enhance customer service. The analysis concludes that cumulatively:
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- Sales INCREASED by 47%
- Inventory turns INCREASED by 38%
- Out of stocks REDUCED by 45%
Critical Element of Transformation from 'Push' to 'Pull'
Leading manufacturers are striving to become more responsive to customer demand across a wide range of products without the need for tremendous amounts of inventory. Many companies are working to develop demand-driven supply networks where they have the ability to quickly 'sense and respond' to actual demand. Some are even using this approach to 'shape' demand based on continuous visibility of market activity.
VMI links a supplier directly to actual customer demand. In the transformation from a 'push' approach to supply chain management to a demand-driven 'pull' approach, unfiltered demand signals are a critical element. VMI provides those signals. With VMI, the right products are continually pulled into the right places at the right time with continuous replenishment at the point of consumer purchase or usage. This fundamental pull process combined with the market visibility it provides makes VMI an indispensable element of any company's demand-driven supply chain program.
How Does VMI Work? >