Binary Spectrum, a Microsoft Gold certified partner and a member of theSun Partner Advantage Program has years of expertise in designing and developing custom retail software solutions). In an effort to present our understanding and expertise in the Retail and Health care software development space we have prepared these articles. Don't forget to browse through our casestudies section and also our FAQ sections.
Vendor Managed Inventory (VMI)in which the supplier is responsible for maintaining the suppliers inventory levels at customer (distributor or retailer) site.
Vendor Managed Inventory (VMI) is a means of optimizing Supply Chain performance in which the supplier is responsible for maintaining the suppliers inventory levels at customer (distributor or retailer) site. The supplier has access to the suppliers inventory data and is responsible for generating purchase orders based on the movement of goods and reaching of the re-order level.
To further define it, lets look at 2 business models:
Under the typical business model: When a retailer needs product, they place an order against a supplier. The retailer is in total control of the timing and size of the order being placed. The retailer maintains the inventory plan.
Vendor Managed Inventory model: The supplier receives electronic data (usually EDI or via the internet) that tells him the retailer’s sales and stock levels. The supplier can view every item that the retailer carriers as well as true point of sale data. The supplier is responsible for creating and maintaining the inventory plan. Under VMI, the supplier generates the order *, not the retailer
*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 customer’s location and retains ownership of the inventory. Payment is not made until the item is actually sold.
Benefits of VMI
The Benefits of VMI are numerous for both Supplier & Retailer. Here is a partial Listing:
Dual Benefits
Data entry errors are reduced and processing speed improved due to system-to-system communication.
Both parties are interested in giving better service to the end customer. Having the correct item in stock when the end customer needs it, benefits all parties involved.
A true partnership is formed between the Supplier and the Retailer. They work closer together and strengthen their ties.
Stabilize the timing of Purchase Orders - PO's are now generated on a predefined basis.
Retailer’s benefits:
The goal is to have an improvement in Fill Rates from the supplier and to the end customer.
Decrease in stock outs and a decrease in inventory levels.
Planning and ordering cost will decrease due to the responsibility being shifted to the Supplier.
The overall service level is improved by having the right product at the right time.
The supplier is more focused than ever in providing great service.
Supplier’s benefits:
Visibility to the Retailers Point of Sale data makes forecasting easier.
Promotions can be more easily incorporated into the inventory plan.
A reduction in Retailer ordering errors (which in the past would probably lead to a return)
Visibility to Stock Levels helps to identify priorities (replenishing for stock or a stockout?).
Before VMI, a supplier has no visibility to the quantity and the products that are ordered. With VMI, the supplier can see the potential need for an item before the item is ordered.
If you are interested in outsourcing software development or would like to find out more about our services and offerings, please get in touch with us. You might want to send us a mail, or simply contact us at info@binaryspectrum.com. A senior member of our customer engagement team will get in touch with you within 24 hours.
