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Definition of Vendor Managed Inventory
Vendor Managed Inventory: A means of optimizing Supply Chain performance in which the manufacturer is responsible for maintaining the distributors inventory levels. The manufacturer has access to the distributors inventory data and is responsible for generating purchase orders.
To further define it, lets look at 2 business models:
Under the typical business model: When a distributor
needs product, they place an order against a manufacturer. The distributor is in total
control of the timing and size of the order being placed. The distributor maintains the
inventory plan.
Vendor Managed Inventory model: The manufacturer receives
electronic data (usually EDI or via the internet) that tells him the distributors sales
and stock levels. The manufacturer can view every item that the distributor carriers as
well as true point of sale data. The manufacturer is responsible for creating and
maintaining the inventory plan. Under VMI, the manufacturer generates the order*, not the
distributor
*Note: VMI does not change the "ownership" of inventory. It remains as it did
prior to VMI.
Consignment Inventory- When the supplier places inventory at a customers location
and retains ownership of the inventory. Payment is not made until the item is actually
sold.
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