Vendor Managed Inventory (VMI) is a supply chain strategy where the supplier is responsible for managing and replenishing inventory based on agreed-upon parameters.
VMI is a collaborative strategy that transfers the responsibility of maintaining inventory levels from the buyer to the vendor, allowing for optimization of inventory management. This approach typically involves the supplier monitoring the buyer's inventory levels and replenishing stocks as necessary, based on data provided via electronic data interchange (EDI) or other integrated systems. The implementation of VMI can reduce stockouts and excess inventory, improving operational efficiency and reducing costs.
A manufacturing company uses VMI for its production line components, maintaining a steady supply of 200,000 units per month based on consumption patterns.
This is commonly used in the automotive and electronics industries, where high-volume, just-in-time manufacturing requires precise inventory control.
A retail chain employs VMI for its fast-moving consumer goods (FMCGs), with inventory turnover rates managed to maintain an optimal stock level that supports a 98% service level.
VMI is particularly prevalent in retail environments with variable consumer demand, ensuring efficient replenishment cycles.
A pharmaceutical company leverages VMI for its raw materials, ensuring a minimum on-hand quantity of 10,000 kg (22,046 lbs) per active ingredient, with vendor oversight ensuring regulatory compliance.
This application is critical in sectors with stringent safety and compliance requirements, such as pharmaceuticals.