Vendor managed inventory (VMI)

1. VENDOR MANAGED INVENTORY
Navindu Munidasa
MSc Logistics and Supply Chain (UK) (Reading); BSc Operations and
Logistics Management (UK); Dip in Computer Hardware and Networking ;
Certificate in Motor Mechanism (CGTTI); Certificate in Workshop Practices
(CGTTI)

2. INTRODUCTION
• Vendor Managed Inventory simply means the vendor (the Manufacturer / Producer)
manages the inventory of the distributor.
• Vendor Managed Inventory or VMI is a process where the vendor creates orders for their
customers based on demand information that they receive from the customer. VMI is a
streamlined approach to inventory management and order fulfilment. VMI involves
collaboration between suppliers and their customers which changes the traditional ordering
process.
• Instead of sending purchase orders, customers electronically send daily demand information
to the supplier. The supplier generates replenishment orders for the customer based on this
demand information. The process is guided by mutually agreed upon objectives for the
customer's inventory levels, fill rates, and transaction costs.

3. THE VMI
MODEL

4. OBJECTIVE
OF VMI
The goal of VMI is to align business
objectives and streamline supply chain
operations for both suppliers and their
customers. The business value is a
direct result of increased information
flow:
• Improved Inventory Turns
• Improved Service
• Increased Sales

5. VMI SYSTEMS
Homemade System:
• Some companies decide to build their own software. It
requires expert knowledge in the area of VMI, Inventory
Management and of course, a few good programmers.
• The benefits of this type of system are that it can be
customized specifically for your business needs. You can
build the system to reflect the uniqueness of your
company.
Pre-packaged:
• There are a few very good off the shelf VMI packages on
the market today. The software usually has most of the
needed basic functionality. Usually it can be customized
to meet your companies’ specific needs.
• Most of these packages meet the entire standard of
VMI. There may be additional charges for any
customization you require. Also, you can probably expect
additional charges for periodic systems upgrades.

6. WHY USE VMI?
• One of the remuneration of VMI is that the vendor is responsible
for supplying the customer when the items are needed. This
removes the need for the customer to have significant safety
stock. Lower inventories for the customer can lead to significant
cost savings.
• The customer also can profit from reduced purchasing costs.
Because the vendor receives data and not purchase orders, the
purchasing department has to spend less time on calculating and
producing purchase orders. In addition, the need for purchase
order corrections and reconciliation is removed which further
reduces purchasing costs. Cost saving can also be found in
reduced warehouse costs. Lower inventories can reduce the need
for warehouse space and warehouse resources.

7. BENEFITS OF
VMI
For the customer, VMI results in
increased profitability due to:
•Reduced inventory/increased turns
•Reduced administrative costs
•Fewer stock-outs or shortages
•Increased sales (for distributors and retailers)
For the supplier, VMI results in
increased profitability due to:
•Increased sales
•Reduced operating costs
•Stronger customer relationships

8. KEYS TO SUCCESS WITH VMI
Companies should
recognize that VMI is
not for everyone.
01
VMI is different from a
typical in-house
information system or
business process
improvement effort in
that neither the
supplier nor the
customer can do it
alone - they must work
together to make it
happen.
02
VMI requires a
technology and
operations platform.
03
Trading partners
committed to the
success of VMI should
look for a source of
experienced guidance
and support, along
with well-conceived
implementation tools
and processes.
04

9. THANK YOU