In our logistics centre we have offered Vendor Managed Inventory (VMI) and Consignment Inventory setups for our customers since 2007.
What is VMI?
A means of optimizing Supply Chain performance in which the vendor is responsible for maintaining the customer’s inventory levels. The vendor has access to the customer’s inventory data and is responsible for generating purchase orders.
What is the Consignment Inventory?
When the vendor 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.
What are the main benefits?
The Benefits of VMI are numerous for both vendor and customer. Here is a partial Listing:
- Dual benefits:
A true partnership is formed between the vendor and the customer. They work closer together and strengthen their ties.
Data entry errors are reduced due to computer to computer communications. Speed of the processing is also improved.
If the vendor is located far from the customer, it is possible to optimize overall transportation cost in the supply chain (possible to ship bigger quantities at once or even switch from air freight to some more cost-efficient transport modes).
Minimizes out-of-stock situations.
- Customer benefits:
Planning and ordering cost will decrease due to the responsibility being shifted to the vendor.
The overall service level is improved by having the right product at the right time.
The vendor is more focused than ever on providing great service.
- Vendor benefits:
A reduction in customer ordering errors (which in the past would probably lead to a return).
Visibility of Stock Levels helps to identify priorities (replenishing for stock or a stock-out?). Before VMI, a vendor has no visibility of the quantity and the products that are ordered. With VMI, the vendor can see the potential need for an item before the item is ordered. Promotions can be more easily incorporated into the inventory plan.