In brief
Vendor managed inventory (VMI) is a model in which the supplier monitors stock at the customer's site and replenishes it independently.
Contents
What is Vendor managed inventory?
With vendor managed inventory, the supplier takes over the inventory planning for agreed items. It receives stock and consumption data from the customer, for example via electronic interfaces, scanners or regular stock counts, and triggers replenishment independently in order to maintain agreed minimum and maximum stock levels. The customer no longer has to initiate individual purchase orders for these items.
Advantages are lower process costs, stable availability and often lower stock levels, because the supplier can smooth demand across several customers. Prerequisites are reliable data, clear KPIs such as service level and stock coverage, and trust, since the supplier gains insight into consumption.
Unlike consignment stock, with VMI ownership usually passes on delivery and is then invoiced. Combinations of the two models are common. Access rights, data formats, response times and the handling of stock-outs must also be laid down in the contract so that responsibilities remain clear in day-to-day operations.
In practice: maintenance and procurement
VMI is particularly suitable for regularly consumed wear parts and C-parts. It is less suitable for rarely needed, critical individual parts, because consumption does not provide a reliable basis for planning.
Synonyms and abbreviations: VMI · supplier managed inventory (SMI) · vendor-managed replenishment
Frequently asked questions
How does vendor managed inventory work in practice?
Customer and supplier define items and minimum and maximum stock levels. The supplier regularly receives stock and consumption data, for example via an interface, scanners or on-site counts, and plans replenishments independently. The customer checks the deliveries at goods receipt and receives invoices, usually consolidated. KPIs such as service level and stock coverage are monitored jointly and discussed at regular intervals.
What does vendor managed inventory require?
Unambiguous item master data, reliable stock recording and regular data exchange are needed. In addition, responsibilities, stock limits, response times and the handling of shortages must be set out in the contract. Trust is also important, as the supplier gains insight into consumption. The model works best for items with regular, readily predictable consumption.
What are the benefits of VMI for customers?
Customers save effort for planning and individual orders because replenishment is triggered automatically. Availability of the agreed items becomes more stable, and stock can often be reduced, as the supplier plans quantities based on actual consumption. The number of ordering transactions and invoices also falls. However, the benefit depends on how well data and responsibilities work in day-to-day operations.