Process of Vendor Managed Inventory can be defined as a mechanism where the supplier creates the purchase orders based on the demand information exchanged by the retailer or customers. It implies that the supplier does the demand creation and the fulfillment, instead of the retailers or customers managing the inventory.
Under the typical business model an order is placed to the manufacturer when the product is needed by the distributor. The inventory plan is maintained by the distributor as he is in control of the timing and size of the order being placed. Creating the responsibility of manpower team, space and inventory management, increased administration work and conflict between responsibility ownership in case of quality issue.
Under Vendor-Managed Inventory model the order is generated by the manufacturer without being the change of ownership of inventory. The inventory plan is maintained and created by the manufacturer as he receives the data that tell him about the distributor’s sales and stock levels. This model eliminates the case of emerging conflict in case of quality issues, save manpower, space and inventory management and administration work as sole responsibility is with the system supplier.
The goal of Vendor-Managed Inventory is to align the business objectives and streamline supply chain operations for both suppliers and their customers, by using a streamlined approach to inventory management and order fulfillment. It involves collaboration between suppliers and their customers (e.g. retailer, distributor, or product end user) which changes the traditional ordering process.
This process works only if expectations are clarified between the organization and the supplier, they both need to agree on how to share information regarding the restocking in a timely and synchronized manner and keep their communication channels open.
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