Tuesday, 29 March 2016

How can suppliers help to reduce waste in the customer’s process?

Vendor managed inventory (VMI)

Vendor managed inventory (VMI), is when the management and replenishment of the inventory is the responsibility of the supplier and not the customer.  It is used to reduce the waste in the customer’s process. The supplier is the one who has to monitor the inventory and the sales and they use this information to make the replenishment orders. So it is the suppliers who have the responsibility.

Suppliers track the sales and the inventory level of the customer and they then send the goods when the stock levels drop. This goes against the tradition of the customer making the replenishment order to the supplier. The supplier makes the decision to replenish based on whether the current level of inventory will be able to meet the demand of the market, but they also have to take into account the lead time to resupply.

VMI needs teamwork between the manufacturer and the retailer in order to work. Both the retailer and the manufacturer benefit from the system providing they use appropriate performance measures. The main measure is the product being available to the retailer in order to avoid losing sales and to benefit from creating customer buying habits while having minimum inventories. Real time demand information is also required to make VMI work. EDI is what is mostly used to share demand data from the customer to the supplier.

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