Vendor Managed Inventory (VMI) is a replenishment program for optimizing supply chain performance. During VMI, a supplier is responsible for optimizing the manufacturer’s inventory levels. The VMI service provider has the responsibility and authority to make stock replenishment decisions and generate purchase orders.
VMI is a business collaboration. The aim of this collaboration is to make the replenishment process more efficient, to optimize inventory levels at lower costs for the manufacturer, to increase demand certainty, and to generate higher sales for suppliers.
In addition to inventory replenishment, VMI programs can address a wide range of tasks and processes. VMI programs may address the relationship between a manufacturer and its suppliers, between a distributor and its manufacturers, or a retailer and its distributors. Moreover, a VMI strategy can encompass anything from complex strategic planning and total inventory management, to a single task or a combination of inventory management tasks.
VMI programs offer dramatic improvements in supply chain and financial performance. Replenishment decisions are made by the third-party vendor or supplier based on agreed key performance indicators (KPIs), including availability and stock turnover. Quantitative performance improvements include:
The bigger the shipping volume with the business partner, the greater the percentage‐based potential savings. It is estimated that savings up to 2%‐3% of total turnover can be achieved with a VMI program, if applied correctly.
An internal VMI program must deal with multiple suppliers on its own. This can potentially lead to supply chain control issues involving inventory ownership, physical control and visibility.
When operating VMI internally, organizations expect their personnel to have the relevant experience to connect with the right people, use the most accurate forecasting methodologies, and obtain knowledge that helps select the appropriate Key Productivity Indicators (KPI’s). Unfortunately, regardless of the staff’s professional acumen, this is rarely the case.
To make up for lack of professional experience, many organizations invest in advanced ERP and CRM technology. While technology facilitates smart decisions, these decisions also require human judgment. Even with the best software, evaluating inventory trade-off decisions and selecting the right course of action in a collaborative discussion with cross-functional teams isn’t assured.
Outsourcing ensures best practices throughout key business components and other vital processes. By outsourcing critical non-core activities, companies can focus their efforts on core activity areas.
As a trusted third-party VMI partner, UPPRO eliminates VMI challenges as a single accountable partner that emphasizes premium service delivery, including:
UPPRO combines technology and management insight with in-depth experience to leverage existing software, staff and system investments. That’s how significant added-value is created.