VENDOR INVENTORY MANAGEMENT (VIM)

VMI involves collaboration between vendors (suppliers) and their customers which changes the traditional ordering process. Vendor-managed inventory is a family of business models in which the buyer of a product provides certain information to a vendor (supplier) of that product and the supplier takes full responsibility for maintaining an agreed inventory of the material, usually at the buyer's store. First applied to the grocery industry, between companies like Procter & Gamble (supplier) and Wal-Mart (distributor).

Under 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.

Vendor Managed Inventory model:

The manufacturer receives electronic data (usually via EDI or the internet) that tells him the distributors sales and stock levels. The manufacturer can view every item that the distributor carries as well as true point of sale data. The manufacturer is responsible for creating and maintaining the inventory plan.

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.

VENDOR MANAGED INVENTORY PROCESS

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Data communications Calculations Monitoring and Reporting

Benefits of VIM

Reduced inventory Reduced administrative and operating costs Increased sales Stronger customer relationships Better information for planning (e.g. demand visibility) A closer, more effective working relationship both parties work together to sell more to and/or better serve end customers

Pitfalls of VIM
EDI problems Acceptance Over/Obsolete Stock Time