Vendor Managed Inventory Support (VMI Contract)
In a Vendor Managed Inventory model, suppliers assume the responsibility of managing supply levels for their customers, based on shared information, in order to maximize inventory efficiency and reduce risk of overstock and out of stock.
This allows the Supplier to drive demand-supply network efficiencies and assure a high level of product availability while maintaining lower inventory levels.
Vendor Managed Inventory allows companies to maintain minimum, maximum, and target inventory levels while tracking consumption (pull) and replenishment cycles with customers. The dynamically-generated schedule ensures that suppliers restock to maintain inventory within the pre-defined contracted levels. Consumption-based replenishment ensures lean operations and lower inventory levels.
A successful VMI solution requires three key components: a Forecasting Process, a Replenishment Process and Performance Monitoring.
This is the process of demand collaboration between the buying entity and supplying entity. It ensures agreement on a plan which leads to the creation of a Blanket Order. This plan is what drives the Supply and Operations Departments at the Supplying entity.
This process can prove to be more complex and multi-dimensional than the forecasting process. It ensures that entities (or tiers) needed for the VMI buffer feeding the Buying entity are properly planned for and replenished. The complexity of this process depends on the VMI configuration being considered and the network requirements (locations, lead times, frequency of shipments, etc.).
Most VMI setups include a set of performance criteria that protect the Buying entity in return for giving the Supplying entity access to better demand (consumption) data. This process is concerned with tracking the attributes of such an agreement (e.g. maintaining inventory within the Min/Max band, etc.).
Replenishment Life Cycle
Buyer Demand Forecast
Projected Inventory (Based on future demand)
Min, Max, and Target Inventory Levels
Suggested Replenish Schedules (Calculated by application based on demand, on-hand inventory, transit lead time, MOQ. lot size etc.)
Supplier Creates Shipments and Ships Product
Supplier Receives Shipment and Provides Receipt Visibility
Supplier Triggers any business process exceptions dynamically for Proactive Issue Identification and Resolution
Consumption Life Cycle
Buyer Communicates Product Requirements by Issuing Pull Signals
Pulls are Created Referencing Blanket Orders (Email Alert Generated to Supplier when New Pull is Created).
Supplier Ships Against the Pulls (Pull Expires in 24 Hours if No Shipment is Created)
Adjusted On-Hand Inventory at VMI when Product is Loaded
User Get Near Real Time Inventory Visibility
Buyer Recieves Product and Communicates Goods Receipt
VMI Users get Visibility to Shipments and Receipts
How the Process Works in Practice.
The workflow shown below provides a summary of the key steps involved in a typical VMI process. With the right tools you can have multiple configurations for your process leading to a successful outcome.
Sample VMI Process Flow
The Workflow shown Provides a summary of the key steps involved in a typical VMI process regardless of the chosen configuration.
Vendor Managed Inventory as a collaborative supply chain process has been in existence for many years but only a few companies have managed to properly implement it and drive true supply chain value. Our typical contracts with our clients are usually every order has a specific overrun (as per contract) that overrun gets put into inventory until the Min/Max is achieved. Customer is notified (e-mailed report) stating that there is stock to pull with quantity and can ship same day or next day.
NOTE: We do not keep large inventories, and client is required to buy back any left over stock as per excepted VMI Contract agreements.