Vendor Managed Inventory (VMI) is an advanced form of Generix Collaborative Replenishment (GCR), in which the vendor/supplier is solely responsible for managing its inventory located in the distributor’s/customer’s warehouses.
With VMI, the vendor monitors stock levels of its products at the customer’s site and initiates replenishment without the customer having to place orders. In other words, through VMI, the distributor delegates inventory optimization to the vendor. VMI should not be confused with another form of collaborative replenishment, CMI (Co-Managed Inventory), in which the customer reviews and validates the orders proposed by the vendor.
How Vendor Managed Inventory (VMI) Works
For VMI to be successful, a strong relationship of trust must exist between the distributor and the supplier.
The distributor must regularly share sensitive data with the supplier, including sales figures, inventory levels and demand forecasts. In return, the supplier must optimize inventory to meet predefined objectives agreed upon with the customer in terms of service levels, coverage rates, and more.
VMI requires close communication between the distributor and the supplier so that both parties can maximize the benefits of the arrangement.
A Win-Win Solution
Effective VMI enables retailers to meet the needs of their stores more efficiently and deliver the best possible service to end customers. It also helps reduce inventory levels, whether active or inactive. As a result, VMI contributes to lowering costs as well as the risks associated with inventory management.
The benefits are equally significant for vendors: production and delivery plans aligned with demand, avoidance of stockouts, increased sales, and improved customer satisfaction rates.
Case Studies of Companies Successfully Adopting VMI
VMI offers numerous advantages for all stakeholders. In the United States, leading retailers have clearly embraced it. Amazon, Walmart, Procter & Gamble, Home Depot and many others have relied on VMI for years. The approach is also gaining traction in France, driven by several major retailers.