Vendor Managed Inventory (VMI) is a concept in which a supplier generates the customer order based on shared information (on customer demand and inventory).
The supplier obtains transactions information from the customer on a daily or weekly basis. Typically the supplier generates his own distribution center level replenishment forecast based on the historical data. Als the supplier's Vendor Managed Inventory (VMI) analyst may incorporate promotional intelligence into the forecast through discussions with the sales team.
Benefits
- the VMI planner at the manufacturer, the person ordering, knows the products. This translates into a more efficient replenishment plan
- More visibility into Customer inventory levels provide better info to manage supply constraints.
- Increased sales at retail due to better in-stock levels. This also results in Inventory Optimization for the customer.
- Reduced customer administrative costs, since the replenishment work is transferred to the supplier. This is purely a benefit to the customer, but many a times this acts as a major catalyst for the establishment of a VMI relationship.
Although VMI is constrained by criticisms of short-term focused and being too tactical, in practice it has been very popular because of their low cost to implement. The key is to leverage the low-cost implementation while driving consensus and collaboration and bringing the focus on promotional planning and management.
Application areas:
Industries: a.o. Oil, Gas and Chemicals
Solutions areas: Vehicle Routing and Dispatch
ORTEC contribution:
ORTEC solutions like ORTEC Shortrec and ORTEC Transportation and Distribution, ORTEC LEO (SAP embedded load building and vehicle routing).
ORTEC references a.o.:
Primagaz
ORTEC publications:
P. Hulshof, ORTEC: How VMI can be successful in gas distribution: a solution methodology for the inventory routing problem in gas distribution Download Thesis (pdf)
ORTEC news:
ORTEC employee wins award for research into VMI and Inventory Routing
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