Implementing the VMI.
By: Dasza

AGO 17, 2020

To implement VMI as a tool, it is necessary to share information, coordinate and integrate the processes between the parties. In the initial negotiation, the operating dynamics must be analyzed to find a system that suits both partners.

The VMI is characterized by being the supplier who monitors the sales and inventory information of its customer, thus having the responsibility of automatically restoring its materials. This gives a great advantage to consumers, as they do not need to send purchase orders and only rely on the delivery of quantities necessary to meet their consumption. This is a more advanced version of continuous replenishment, in which suppliers can gradually decrease inventory levels as long as all service levels are maintained.

There are different working models for the VMI system, some are:

Collaborative model: information is shared and development of joint production plans, demand and consumption plans by reference to establish replenishment plans.

Collaborative model

    Mandated transfer model: The customer transfers the inventory management activity and costs to the supplier.

    Mandated transfer model
  Automated model: combines the positive elements of each of the previous models, including the main objective of reducing total costs for the supply chain. It is made up of four stages: collaboration, planification, execution and evaluation.

    Automated model
  Time and precision are two significant factors in management through VMI. In the traditional format, purchase requests need to be granted, go through approval and mechanical delivery to the supplier, while in the VMI monitoring system all these operations are automated according to pre-established conditions between the supplier and the customer. This means that process flows become faster and less likely for errors or inaccuracies.

An example of the success in the implementation of the VMI can be seen with Walmart and P&G, these companies have managed the production and inventory of disposable diapers for more than 10 years, achieving that Walmart reduced its operating expenses and inventory and that the P&G market grow given the preference that Walmart gave it on the shelves.

As we see, the implementation of VMI can result in a win-win between the supplier and customer. Which of the VMI models would you prefer to work with?