Vendor-Managed Inventory (VMI)

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Vendor-Managed Inventory (VMI) is the process where a supplier manages the inventory levels and purchases of the materials he supplies. This process can be very low tech, such as an office supplies supplier or maintenance supplies supplier coming into your facility once per week to visually check stock levels and place a re-supply order, or high tech, such as an electronic component supplier having remote access to your inventory management and MRP system and producing and automatically shipping to meet your production schedule. Vendor-managed inventory can enables the vendor to better manage his inventory through higher visibility to the supply chain and lower the internal expenses associated with your planning and procuring of materials. Vendor-managed inventory may be owned by the customer or the vendor (consignment inventory).

VMI can succeed if detailed concentration is made in the following areas:

-Information Sharing – If the supplier and customer can agree to share information vital to restocking in a timely manner, then the odds of a synchronized system will dramatically improve. Proprietary information would not have to be shared between the supplier and customer, but enough information to maintain a steady flow of goods is necessary. The customer should be willing to share production schedules and/or forecasts to provide some visibility for the supplier.

-    Planned Expectations – There needs to be thorough discussion about how the system will benefit both partners in the long term or one of the parties, especially suppliers, who can be victims to disappointment with some of the short-term results. If these items are not addressed the program will likely end soon with neither partner gaining any of the advantages expected from the enterprise. The goal is precise and permanent communication between the supplier and customer. When the two parties work together, and both commit to the plans, the y can be assured that the planning function, for both sides, will begin to smooth over time.

-  Open Communications – When you proceed with the ‘partnership’ of starting a VMI program, both parties need to discuss their goals and decide how they need to proceed in order to realize them. Once underway, the VMI partners need to acknowledge that there are going to be some hiccups and backfires. These need to be analyzed in order to aid in planning and improvement for a growing system that is fluid enough to prevent recurrences of the backfires while remaining open and nimble to incorporate new technologies and ideas.

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