VMI – An analogy with everyday life
- You order the product “water” and create a demand when you turn on the faucet.
- The water company – your supplier – manages your water supply until the next demand.
- The water company “owns” and manages the water supply and ensures that it is always available when you need it.
- You do not issue a purchase order for an individual glass of water.
- You only sign a basic agreement and there is no issue of an individual invoice for each glass of water.
- The company totals its usage, which is paid based on the consumption of the agreed period (monthly).
What is Vendor Managed Inventory?
Vendor Managed Inventory (VMI) is a system for optimizing supply chain performance, where the vendor is responsible for managing inventory levels in customers. The supplier has access to the customer’s stock levels and assumes the restocking decisions himself.
VMI integrates into the supply chain as a way to establish real collaboration and information sharing between the supplier and the customer.
Verifying in detail the use of Vendor Managed Inventory solutions in some markets and some studies conducted by Brazilian and international researchers, we understand that a Vendor Managed Inventory solution has two stages, even both of which are known as VMI.
Vendor Managed Inventory – First Stage
At this stage, which we will call here as VMI, the supplier is responsible for verifying inventory levels, placing order internally, and replenishing, in short, inventory management.
In this first stage, it has been verified that suppliers use several tools to receive the inventory information, which is what generates the beginning of the order cycle, such as:
- Agent: Some suppliers have agents within their clients or send them frequently, to check the level of inventories.
- Telemetry: Sensors capture inventory levels and alarms (email, SMS, etc.) and are generated when predefined levels are reached.
- Customer: the customer checks daily (usually, once a day) the level of inventories and informs the supplier – yes, some companies consider this form as VMI, from the receipt of stock level information, the supplier is responsible for replenishment.
Telemetry has been widely used because of affordable costs and, in conjunction with the internet, enables access to level information anytime, anywhere.
Vendor Managed Inventory – Second Stage
This is what is being called “eVMI” (Vendor Managed Electronic Inventory).
In this second stage, the concept of the supplier being responsible for managing the inventory continues, however, the entire order cycle is automated and integrated, between supplier, customer and possibly logistics operator. In addition to inventory management, the supplier can manage orders.
When there is a need for replenishment, indicated by the sensors, a request is created directly in the supplier’s system (ERP). The stage of each order can be shared between supplier and customer, such as registered, dispatched and delivered order.
Some literature states that most of the benefits of IMV are found in the second stage (eVMI) because the supplier manages the entire inventory policy (orders, stock limits, delivery quantities, transport optimization, etc.), since, in the first stage (VMI), the supplier is only responsible for the refueling, not having freedom over the customer’s stock policy.
A consigned stock is understood when the supplier stocks its final product within its customer or distributor and holds ownership of this stock.
Payment for this product is not made until the item is actually used. A Vendor Managed Inventory relationship may or may not involve consigned inventories.
ORBIT Logistics is one of the world’s leading suppliers of inventory management solutions (VMI – Vendor Managed Inventory and SCM) and real-time data acquisition.
Our company, founded in 2003, provides a modular system for supply chain management and automation, serving global customers from offices in Leverkusen (Germany), Atlanta (USA), Sao Paulo (Brazil) and Shanghai (China). A highly qualified team of more than 40 engineers and technicians offers customized turnkey solutions for process management and monitoring.
For more information:
Phone: (55 11) 3796-1755 / 1756
Cellphone.: (55 11) 96420-1701