Vendor Managed Inventory

Topics: Supply chain management, Inventory, Supply chain management terms Pages: 8 (1357 words) Published: August 7, 2011
Vendor Managed Inventory

Modul: Supply Chain Management (FEG 2323)

Tahun : 2011 ~ 2012


Parts Page













1. Introduction

Vendor Managed Inventory (VMI) systems came into vogue in the 1990’s as a way to decrease supply chain costs. Some firms have successfully improved their supply chain performance by implementing an approach known as Vendor Managed Inventory (VMI). With VMI, the vendor specifies delivery quantities sent to customers through the distribution channel using data obtained from EDI (Electronic Data Interchange).

2. Definition

A means of optimizing Supply Chain performance in which the manufacturer is responsible for maintaining the distributor’s inventory levels. The manufacturer has access to the distributor’s inventory data and is responsible for generating purchase orders. To further define it, let’s look at 2 business models:

2.1Under the typical business model:

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.

2.2Vendor Managed Inventory model:

The manufacturer receives electronic data (usually via EDI or the internet) that tells him the distributor’s sales and stock levels. The manufacturer can view every item that the distributor carriers as well as true point of sale data. The manufacturer is responsible for creating and maintaining the inventory plan. Under VMI, the manufacturer generates the order*, not the distributor. *Note: VMI does not change the "ownership" of inventory. It remains as it did prior to VMI.

Consignment Inventory:

When the supplier places inventory at a customer’s location and retains ownership of the inventory. Payment is not made until the item is actually sold. A VMI relationship may or may not involve consignment inventory.

3. Goal

The goal of Vendor Managed Inventory is to provide a mutually beneficial relationship where both sides will be able to more smoothly and accurately control the availability and flow of goods.

4. Objective

VMI reduces stock-outs and reduces inventory in the supply chain. Some features of VMI include: • Shortening of the supply chain
• Centralized forecasting
• Frequent communication of inventory, stock-outs, and planned promotions.

Electronic Data Interchange (EDI) linkages facilitate this communication. • No manufacturer promotions
• Trucks are filled in a prioritized order. For example, items that are expected to stock out have top priority, then items that are furthest below targeted stock levels, then advance shipments of promotional items (promotions allowed only in transition phase), and finally, items that are least above targeted stock levels. • Relationship with downstream distribution channels

Result: Inventory reduction and stock-out reduction

5. Benefit

The benefits implementing the VMI are devided by 4 categories. There are;

5.1.Supply Chain level

1. minor inventory levels at total supply chain level

2. Less overhead

3. Increase sale

4. Reduces human data entry errors


1. Better insight in customer demand (better resource usage,...
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