Question

Why are major retailers and their suppleirs moving toward vendor managed inventory?

Answer 1

Vendor manager inventory (VMI) is generally helpful in partnering programs or projects to improve the multi-organization supply chain efficiency. It is also called as “supplier managed” or “continuous replenishment” inventory. In VMI based arrangement, the supplier makes the decision for the consuming firm. Hence, the vendor monitors the buyer’s inventory level and takes decisions to reorder, ship or time of the resupply. Generally purchase orders are released by the buyer but in this arrangement this can be fulfilled by the supplier and advance shipping alert informs the buyer that the material is in transit. This arrangement transfers the burden of managing assets to the vendor by making sure that the potential customer service levels are fulfilled. Hence, VMI offers reduced cost and improved service. Through electronic data interchange, the VMI can be enabled successfully. The concept of VMI evolved due to the errors in forecasting in supply chain and which in turn raised the costs.