In VMI, the inventory at the buyer’s end is managed and monitored essentially by the supplier/vendor or the upstream supply chain partner. Read this post by apparel industry expert, Mausmi Ambastha, to understand the concept better.

2. CONCEPT
• Managing Inventory is one of the biggest tasks at hand any organization has.
• Ensuring it is under the specified level, simultaneously making sure it does
not run out when needed, is a herculean task in itself.

3. WHAT IS VMI
• Vendor managed inventory or VMI as known commonly, is an integrated inventory
management approach that offers relief from the inventory concerns.
• In VMI the inventory at the buyer’s end is managed and monitored essentially by the
supplier/vendor or the upstream supply chain partner.
“Vendor Managed Inventory is the term for inventory management systems where the
supplier manages the day to day inventory activity. In a VMI relationship, the manufacturer
becomes responsible for the management of his customer's inventory.” (Pol, Inamdar, 2012)

4. WHAT IS VMI
• VMI is a reverse inventory replenishment process that electronically connects supply chain
partners to felicitate demand and inventory replenishment planning based on real-time
demand information sharing between them.
• One of the most common instances of VMI implementation in business is the relationship
between Walmart and P&G, where P&G is responsible for managing the agreed inventory of
P&G products on Wal-Mart’s store shelf space based on the real-time sales data shared by
Walmart.

5. WHY SHOULD ONE IMPLEMENT VMI
• VMI offers a symbiotic relationship. Hence, it reduces the chances of stock out occurrences
along with ensured inventory reduction.
• Also, to manage and monitor the consumption, the vendor might place its representatives on
site, at the retailer’s end.
• This way the vendor can ensure that her product display at the store is as per her expectations,
and the retail staffs at the store are also aware or accustomed with the product features which
will aid not just the retailer but the vendor in increasing the sales of her products.
• VMI offers the benefit of shared risks between the two involved parties, i.e. if the inventory
fails to sell off the shelves, the vendor might repurchase it from the retailer or the ownership
of the product might have been with the vendor until final sales take place, an arrangement
known as ‘consignment’.

6. WHY SHOULD ONE IMPLEMENT VMI
• VMI offers a symbiotic relationship. Hence, it reduces the chances of stock out occurrences
along with ensured inventory reduction.
• Also, to manage and monitor the consumption, the vendor might place its representatives on
site, at the retailer’s end.
• This way the vendor can ensure that her product display at the store is as per her expectations,
and the retail staffs at the store are also aware or accustomed with the product features which
will aid not just the retailer but the vendor in increasing the sales of her products.

7. WHY SHOULD ONE IMPLEMENT VMI
• VMI offers the benefit of shared risks between the two involved parties, i.e. if the inventory
fails to sell off the shelves, the vendor might repurchase it from the retailer or the ownership
of the product might have been with the vendor until final sales take place, an arrangement
known as ‘consignment’.
• VMI implementation is beneficial especially in retail industry and consumer packaged goods,
where the product demand is relatively stable with short term fluctuations.
• Also, high volume but smaller sized or smaller monetary value products can be managed by VMI.

8. VARIATIONS OF VMI
There are two popular VMI variations based on the parties involved in the program:
1. Inventory-driven VMI
– The VMI relationship between manufacturer and its suppliers
– Manufacturers have the forecasting control in their hands.
2. Consumption-driven VMI
– The VMI relationship between retailers and their vendors
– The forecasting control is in the hands of the vendor based on the point of sale
information available.
– Inventory replenishment is driven by the consumption on the point of sale at the retailer’s
location rather than inventory levels at the retailer’s location.

9. COMMON MISTAKES MADE
WHEN IMPLEMENTING VMI
• VMI implementation is long term plan and requires continuous involvement and efforts from
both the parties involved.
• Hence, development of a clearly defined and practical implementation plan is crucial
for VMI’s success.
• The biggest roadblock to VMI’s success will be keeping and monitoring the internal
resources allocation.

10. COMMON MISTAKES MADE
WHEN IMPLEMENTING VMI
• Before organization-wide system implementation, or before bring the system live, the team
should ensure all the involved internal elements of software, people, and processes are aligned
well and functioning as needed.
• Pilot runs and prototype tests can be beneficial to avoid any glitches in the system once actual
work starts.
• The most common mistake that can happen is to forget the people who are involved. VMI
cannot be implemented successfully without proper change management and people
involvement.
• Hence proper planning and training of the buyers, technicians, planners and the other auxiliary
staff involved is crucial.

11. Benefits of VMI to the Buyer
• Reduced inventory as the safety stocks needed earlier is reduced considerably.
• Reduced stock-outs / shortages as the supplier manages his own inventory rather than the
retailer who is managing thousands of products from hundreds of suppliers.
• Higher sales as the stock outs are reduced.
• Reduced administrative and labour costs of daily inventory management and planning and
order processing.

12. Benefits of VMI to the Supplier
• Reduction in safety stocks as the actual real-time demand information is readily available
due to increased visibility.
• Reduction in errors related to the purchase orders.
• The actual customer need can be foreseen and hence supplier can plan her operations
accordingly.
• Strategic relationships are formed with the buyers.

13. VMI LIMITATIONS
• It can encourage the vendor to directly cater to the customers in future, as they get the
information and idea as to what the customer needs and demands and how the customer need
can be fulfilled.
• Also, the actual customer experience now shifts from the hands of the retailer to the hands on
the vendor and thus can backfire if not managed properly.
• Though these disadvantages can deter a company in implementing VMI, but they can
counter by better engagement and forming long-term strategic partnerships with the vendors
in the first place.

14. References
S.M. Disney, D.R. Towill (1980). Vendor-Managed inventory and bullwhip reduction in a two-level supply
chain. International Journal of Operations & Production Management, Volume 23, Issue 6, Pages 625-
651. doi:
10.1108/01443570310476654
Yuliang Yao, Philips T. Evers, Martin E. Dresner (March 2007). Supply chain integration in vendor-
managed inventory. Decision Support Systems, Volume 43, Issue 2, Pages 663-674.
doi:10.1016/j.dss.2005.05.021
S.M. Disney, D.R. Towill (11 August 2003). The effect of vendor managed inventory (VMI) dynamics on
the Bullwhip Effect in supply chains. International Journal of Production Economics, Volume 85, Issue
2, Pages 199-215. doi: 10.1016/S0925-5273(03)00110-5
Sila Centinkaya, Chung-Yee Lee (1 February 2000). Stock replenishment and shipment scheduling for
vendor-managed inventory systems. Management Science, Volume 46, Issue 2, Pages 217-232. doi:
10.1287/mnsc.46.2.217.11923
G.J. Pol, K.H. Inamdar (July 2012). Framework to implementation for vendor managed inventory.
International Journal of Engineering Research and Development, Volume 2, Issue 3, Pages 46-50. eISSN
: 2278-067X, pISSN : 2278-800X, www.ijerd.com

15. For an elaborate insight on the topic, visit
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