Vendor Managed Inventory (VMI) is a business model where owners and vendors work together to maintain optimal inventory levels. A computer program linked to the supplier monitors product levels and automatically ships products to the buyer. This model saves time, reduces errors, and promotes a deeper understanding of customer needs by vendors.
Vendor managed inventory (VMI) is a type of business model in which owners and vendors work together to maintain an optimal level of inventory at the business owner’s factory or warehouse. Instead of the traditional ordering method, in which the owner or buyer checks his inventory and then places an order, a system is put in place that allows product levels to be monitored through a computer program linked directly to the supplier. The seller then automatically ships the product to the buyer, often even stocking the shelves, without any sort of manual order being placed. In this type of relationship, the participants are often referred to as business partners, even if this does not imply any kind of formal or legal partnership.
The familiar and ever-present barcode is part of an electronic data interchange, which is the computerized system at the heart of the supplier-managed inventory process. Data is transferred between business partners entirely without human input. This happens instantaneously, which is beneficial to both the owner and the seller, particularly as it affects the supplier’s ability to regulate production. It also occurs in a way that is much less susceptible to error.
This supply chain management model is used by many large retailers. Not only does it save time and manpower, but it also reduces the likelihood of stores and outlets running out of product. When the actual display and storage of the shelves is the responsibility of the seller, it is in everyone’s interest that this is done efficiently and in such a way as to display the product in the best possible way.
It may appear that the owner of the business is taking a vulnerable position in allowing the seller to control the quantity of product ordered. With a vendor-managed inventory system, however, responsibility is often shared. This can come in the form of consignment stock, where the retailer simply offers the goods to the seller and keeps a percentage of the sale. The agreement could also be that if the seller places a product which he does not sell, that product may be returned under terms previously agreed between the respective parties. Vendor-managed inventory is designed to increase efficiency, but it also promotes a deeper understanding of customer needs by vendors.
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