What is Vendor Managed Inventory (or VMI) ?
Vendor Managed Inventory simply means the vendor (the Manufacturer) manages the inventory of the distributor. The manufacturer receives electronic messages, usually via EDI, from the distributor. These messages tell the manufacturer various bits of information such as what the distributor has sold and what they have currently in inventory. The manufacturer reviews this information and decides when it is appropriate to generate a Purchase Order.

To further explain Vendor Managed Inventory, lets look at an example. Prior to implementing a VMI program, a Widget Distributor operated under a non-VMI business model. It created an inventory plan, then monitored and controlled it’s own inventory levels. When the company felt it needed more inventory, they would place a Purchase Order against the manufacturer.

Under a Vendor Managed Inventory setup, the Widget Manufacturer would setup the Distributors inventory plan. The Manufacturer would then monitor the Distributors inventory levels, keeping track of the sales and the current inventory level. Once the Manufacturer believed the Distributors inventory levels were too low, the Manufacturer would generate the Purchase Order and ship the product to the Distributor.  Vendor Managed Inventory gives the control over the inventory to the Manufacturer.

 Vendor Managed Inventory promotes a strong partnership between the Manufacturer and the Distributor. Click on the links below to learn more about setting up a VMI program.