Vendor Managed Inventory (VMI) is an approach where the manufacturer or vendor monitors and manages the inventory levels at the distributor or retailer. The key aspects of VMI are: 1. The vendor has access to the customer's inventory data and is responsible for maintaining the required inventory levels. 2. It optimizes supply chain performance by pushing decision making responsibility upstream to the vendor. 3. Benefits include lower inventory costs, fewer stockouts, improved information sharing and customer satisfaction.

1. Vendor Managed Inventory
(VMI)

2. VMI is essentially an integrated approach
whereby the inventory at the
distributor/retailer (downstream) is monitored
and managed by the manufacturer/vendor (upstream)

3. Vendor
Customer
A
Customer
C
Customer
B

4. VMI underlying principal
By pushing the decision making responsibility further up
the supply chain, the manufacturer/vendor will be in a better
position to support the objectives of the entire integrated
supply chain resulting in sustainable competitive advantage

5. Choose the correct answer:
1. Optimizes supply chain performance
2. Supplier has access to customer’s inventory data
3. Supplier is responsible for maintaining the inventory level
required by the customer
4. The process is to resupply inventory by the vendor via
scheduled reviews
5. All of the above

6. Questions for Selecting VMI
 What are your intentions?
 What are the critical materials?
 Which items/commodities have attributed to the greatest
delays?

7. Typical Benefits to Manufacturers
 Lower inventory investments (raw and finished)
 Better scheduling and planning
 Better market information
 Good relationship with customer
 Visibility via information sharing

8. Typical Benefits to Retailers
 Fewer stock-out with higher inventory turnover
 Better market information
 Less inventory in channels (transfer costs)
 Lower administrative replenishment costs
 Greater customer satisfaction
 Reduce cycle time

9. VMI success factors
 Top management commitment
 Focus on effort
 Trust and partnership between supply chain stakeholders
 Highly effective computer/information systems (EDI, Bar
coding, Scanning)
 Competent manufacturers and the ability to forecast
 Willing stakeholders partners and patience

10. 6
Rules to the Road

11. Electronic Data Interchange
(EDI)

12. EDI is
Computer to computer exchange of business
transaction in a standard format

13. EDI Benefits
 Quick access to information
 Reduced labor and material costs associated with handling
paper-based business transaction
 Better communication
 Increases productivity
 Improved tracing and expediting
 Improved billing
 Better customer service

14. Ownership of inventory in VMI
 Initially, ownership transferred to retailer upon receipt of
goods
 Now, VMI is based on consignment relationship in which
manufacturer owns goods until sold
 Retailer benefit: lower inventory cost
 Manufacturers benefits: better control
 Supply chain benefit: system-wide cost reduction

15. Requirements for Effective VMI
 Advanced information systems
 Top management commitment
 Mutual trust
◦ Information sharing
◦ Management of the entire supply chain
◦ Initial loss of revenues

16. Important VMI Issues
 Inventory ownership:
◦ Who owns inventory
◦ In case of Supplier owns the goods until they are sold
 Why would a firm do this?
 Confidentiality
 Communication and cooperation
◦ When one Vendor started partnering with Kmart, Kmart often claimed
that its supplier was not living up to its agreement to keep two weeks of
inventory at all times. It turned out that this was due to the fact that the
two companies employed different forecasting methods.

17. Performance Measurements
 How to ensure VMI will enhance the business?
 Operational improvements
◦ Internal
 The number of stock outs and duration
 Cost of material/service before and after
◦ External
 Customer satisfaction
 Improvement of delivery availability
 Competitive advantage considerations

18. End of Topic