Vendor Managed Inventory
Encyclopedia
Vendor-managed inventory (VMI) is a family of business model
s in which the buyer of a product
provides certain information to a supplier
of that product and the supplier takes full responsibility for maintaining an agreed inventory
of the material, usually at the buyer's consumption location (usually a store).
A third-party logistics provider can also be involved to make sure that the buyer has the required level of inventory by adjusting the demand and supply gaps.
As a symbiotic relationship, VMI makes it less likely that a business will unintentionally become out of stock of a good and reduces inventory
in the supply chain. Furthermore, vendor (supplier) representatives in a store benefit the vendor by ensuring the product is properly displayed and store staff are familiar with the features of the product line, all the while helping to clean and organize their product lines for the store.
One of the keys to making VMI work is shared risk. In some cases, if the inventory does not sell, the vendor (supplier) will repurchase the product from the buyer (retailer). In other cases, the product may be in the possession of the retailer but is not owned by the retailer until the sale takes place, meaning that the retailer simply houses (and assists with the sale of) the product in exchange for a predetermined commission or profit (sometimes referred to as consignment stock). A special form of this commission business is scan-based trading
whereas VMI is usually applied but not mandatory to be used.
This is one of the successful business models used by Wal-Mart
and many other big box retailers. Oil companies often use technology to manage the gasoline inventories at the service stations that they supply (see Petrolsoft Corporation
). Home Depot uses the technique with larger suppliers of manufactured goods (i.e. Moen
, Delta
, RIDGID, Paulin
). VMI helps foster a closer understanding between the supplier and manufacturer by using Electronic Data Interchange
formats, EDI software and statistical methodologies to forecast and maintain correct inventory in the supply chain
.
Vendors benefit from more control of displays and more contact to impart knowledge on employees; retailers benefit from reduced risk, better store staff knowledge (which builds brand loyalty for both the vendor and the retailer), and reduced display maintenance outlays.
Consumers benefit from knowledgeable store staff who are in frequent and familiar contact with manufacturer (vendor) representatives when parts or service are required. Store staff have good knowledge of most product lines offered by the entire range of vendors. They can help the consumer choose from competing products for items most suited to them and offer service support being offered by the store.
What is Vendor Managed Inventory
http://www.vmi2.com
VMI
Business model
A business model describes the rationale of how an organization creates, delivers, and captures value...
s in which the buyer of a product
Product (business)
In general, the product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced...
provides certain information to a supplier
Vendor (supply chain)
A vendor, or a supplier, is a supply chain management term meaning anyone who provides goods or services to a company. A vendor often manufactures inventoriable items, and sells those items to a customer.- History :...
of that product and the supplier takes full responsibility for maintaining an agreed inventory
Inventory
Inventory means a list compiled for some formal purpose, such as the details of an estate going to probate, or the contents of a house let furnished. This remains the prime meaning in British English...
of the material, usually at the buyer's consumption location (usually a store).
A third-party logistics provider can also be involved to make sure that the buyer has the required level of inventory by adjusting the demand and supply gaps.
As a symbiotic relationship, VMI makes it less likely that a business will unintentionally become out of stock of a good and reduces inventory
Inventory
Inventory means a list compiled for some formal purpose, such as the details of an estate going to probate, or the contents of a house let furnished. This remains the prime meaning in British English...
in the supply chain. Furthermore, vendor (supplier) representatives in a store benefit the vendor by ensuring the product is properly displayed and store staff are familiar with the features of the product line, all the while helping to clean and organize their product lines for the store.
One of the keys to making VMI work is shared risk. In some cases, if the inventory does not sell, the vendor (supplier) will repurchase the product from the buyer (retailer). In other cases, the product may be in the possession of the retailer but is not owned by the retailer until the sale takes place, meaning that the retailer simply houses (and assists with the sale of) the product in exchange for a predetermined commission or profit (sometimes referred to as consignment stock). A special form of this commission business is scan-based trading
Scan-based trading
Scan-based trading or Scan based trading is the process where suppliers maintain ownership of inventory within retailers' warehouses or stores until items are scanned at the point of sale.-History:...
whereas VMI is usually applied but not mandatory to be used.
This is one of the successful business models used by Wal-Mart
Wal-Mart
Wal-Mart Stores, Inc. , branded as Walmart since 2008 and Wal-Mart before then, is an American public multinational corporation that runs chains of large discount department stores and warehouse stores. The company is the world's 18th largest public corporation, according to the Forbes Global 2000...
and many other big box retailers. Oil companies often use technology to manage the gasoline inventories at the service stations that they supply (see Petrolsoft Corporation
Petrolsoft Corporation
Petrolsoft Corporation was a supply chain management software company with a focus on the petroleum industry.Petrolsoft Corporation was founded at Stanford University in 1989 by Bill Miller and David Gamboa as Petrolsoft Software Group. It was later incorporated in 1992...
). Home Depot uses the technique with larger suppliers of manufactured goods (i.e. Moen
Moen (company)
Moen is a product line of faucets and other fixtures started by inventor Alfred M. Moen that is now part of the Fortune Brands Home & Security company. The Moen division is headquartered in North Olmsted, Ohio. Moen was originally part of Ravenna Metal Products of Seattle, Washington...
, Delta
Delta Machinery
Delta Power Equipment Corp. designs, manufactures and distributes power woodworking tools under the Delta Machinery brand.-History:Delta traces its roots to the Delta Specialty Company founded by Herbert Tautz in 1919 in Milwaukee, Wisconsin...
, RIDGID, Paulin
Paulin
Paulin is a commune in the Dordogne department in Aquitaine in southwestern France.-Population:...
). VMI helps foster a closer understanding between the supplier and manufacturer by using Electronic Data Interchange
Electronic Data Interchange
Electronic data interchange is the structured transmission of data between organizations by electronic means. It is used to transfer electronic documents or business data from one computer system to another computer system, i.e...
formats, EDI software and statistical methodologies to forecast and maintain correct inventory in the supply chain
Supply chain
A supply chain is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to...
.
Vendors benefit from more control of displays and more contact to impart knowledge on employees; retailers benefit from reduced risk, better store staff knowledge (which builds brand loyalty for both the vendor and the retailer), and reduced display maintenance outlays.
Consumers benefit from knowledgeable store staff who are in frequent and familiar contact with manufacturer (vendor) representatives when parts or service are required. Store staff have good knowledge of most product lines offered by the entire range of vendors. They can help the consumer choose from competing products for items most suited to them and offer service support being offered by the store.
See also
- Scan-based tradingScan-based tradingScan-based trading or Scan based trading is the process where suppliers maintain ownership of inventory within retailers' warehouses or stores until items are scanned at the point of sale.-History:...
- Consignment stockConsignment StockConsignment stock is stock legally owned by one party, but held by another.- Ownership :Ownership of consignment stock is passed only when the stock is used . Unused stock in a warehouse may be returned to the supplier.- Accounting :...
- Electronic Data InterchangeElectronic Data InterchangeElectronic data interchange is the structured transmission of data between organizations by electronic means. It is used to transfer electronic documents or business data from one computer system to another computer system, i.e...
What is Vendor Managed Inventory
http://www.vmi2.com
VMI
Literature
- Tempelmeier, H. (2006). Inventory Management in Supply Networks—Problems, Models, Solutions, Norderstedt:Books on Demand. ISBN 3-8334-5373-7.
- Franke, P. D. (2010). Vendor-Managed Inventory for High Value Parts—Results from a survey among leading international manufacturing firms. ISBN 978-3-7983-2211-0