Vendo Managed Inventory: Benefits and Drawbacks

Topics: Supply chain management, Inventory, Management Pages: 4 (997 words) Published: May 2, 2012
I am a Malawian national and a graduate of Bachelor of Science in Procurement and Logistics Management from The University of Malawi, The Polytechnic. I was born on 4th March 1979.



This presentation covers the following:
Definition of Vendor Managed Inventory.
The Benefits of Vendor Managed Inventory.
The drawbacks of Vendor Managed Inventory.
Examples of organizations in Malawi who are applying the Vendor Managed Inventory Concept.

Definition of Vendor Managed Inventory (VMI)

Baily et al (2005) defines Vendor Managed Inventory as “a collaborative strategy between a customer and supply to optimize the availability of products at a minimal cost to the two companies.” Van Weele (2005) defines Vendor managed Inventory as “a continuous replenishment program that uses the exchange of information between the retailer and the supplier to allow the supplier to manage and replenish products at the store or warehouse level.”

Traditionally, inventories are managed by owners of a retail operation. When the inventory level is low, the shop manager has to decide to replenish the inventory. He therefore contacts the suppliers. This involves a lot of paper work as well as labour to tell that the inventory is on reorder level. But when the retail operation is automated, the supplier and the retail operation systems are linked up usually via Electronic Data Interchange (EDI) or the Internet. The supplier receives electronic data from the retails operation in regard to stock levels of their product. Thus, the supplier is able to view the sales that of the retail operation regarding their product therefore enabling them to create and maintain an inventory plan.

Under Vendor managed Inventory, the supplier is responsible to generate orders and not the retailer. This requires extensive sharing of information so that suppliers can maintain a high degree of visibility of its...
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