What is the Vendor Managed Inventory (VMI)?
By: Dasza

AGO 13, 2020

It is a technological solution that allows suppliers to manage customer stock, it means, the supplier will be responsible for maintaining certain levels of inventory either in its warehouse or at the customer's facilities.

The traditional order cycle demands a lot of resources from companies, so the VMI cycle provides great value for money; Its main benefit is to avoid material shorts.

This facilitates the coordination of the Supply Chain, improves inventory control and optimizes seller management. It is based on both expected demand and stock levels.
  VMI cycle

The fundamental advantages of the VMI are:
  • Lower levels of service
  • Decrease in inventories
  • Higher inventory turnover
  • Administrative cost savings
  • Decreased response times
  • More agile service
  • Improvements in working capital
  • Increase in sales

VMI is an organization-wide commitment in which the provider understands and takes responsibility for supporting their customer with a high level of service. Through formal agreements, both define some of the most relevant variables such as:
  • Delivery times
  • Minimum lots
  • Planning horizons
  • Security inventories
  • Exceptions handling
  • Inventory ownership transfer
  • Information update frequency
  • Indicators of performance
  • Roles and responsibilities of each party

There are VMI software that analyzes order data and generates recommendations to restock the warehouse. Recommendations are created based on forecasts, frequency of sales and the level of inventory turnover, calculating the products that must be replenished.

The key to getting started with VMI is to start with stable products and reliable suppliers. Are you ready to implement it?