29/06/2018
Vendor managed inventory (VMI) is a supply chain initiative where the supplier is authorized to manage inventories of agreed-upon stock-keeping units at customer locations. The benefits of Vendor managed inventory (VMI) are well recognised by successful retail businesses such as Wal-Mart. In Vendor managed inventory (VMI), distortion of demand information (known as bullwhip effect) transferred from the downstream supply-chain member (e.g., retailer) to the upstream member (e.g., supplier) is minimized, stockout situations are less frequent, and inventory-carrying costs are reduced. Furthermore, a Vendor managed inventory (VMI) supplier has the liberty of controlling the downstream resupply decisions rather than filling orders as they are placed. Thus, the approach offers a framework for synchronizing inventory and transportation decisions.
Definition of Vendor Managed Inventory
Vendor managed inventory (VMI) is defined as inventory which is managed by the supplier / vendor. Vendor Managed Inventory (VMI) involves another party, other than customer, taking responsibility for elements of inventory management, including setting and managing inventory levels, re-ordering, and replenishing.
Some Examples of Vendor managed inventory (VMI) are:
Vendor at the customer site, Vendor deciding when and how much inventory needs to be ordered, but the actual ordering and owning of the inventory is by customer (example Fastener VMI)
Vendor at the customer site, vendor in possession of the inventory, making the inventory decisions and placing the orders, with customer taking ownership of the inventory when customer takes the item of inventory for use (ex: Tool Crib/Items issued through supplier owned vending machines).
Vendor not at the customer site, vendor has inventory at the customer site and periodically reviews (either remotely or physically) the inventory on hand and restocks the inventory when the vendor deems it necessary. A form of consigned inventory.
Vendor not at the customer site, subcontracts the inventory management to a third party and has the inventory also held in a third party warehouse, from which it is shipped and replenished (example UPS VMI)
