Vendor Managed Inventory (VMI) and Co-Managed Inventory (CMI) are a more passive collaboration between the customer and the supplier.
Valtitude recommends its customers a modified VMI that incorporates a rigorous focus on promotional planning, event modeling, and sales-force oriented collaboration. Our implementation of promotions-focused VMI will help you drive better integration into supply chain while achieving your customer's stated goals.
VMI – Vendor Managed Inventory
The Definition: Vendor Managed Inventory is a program in which:
the supplier generates the customer’s order,
based on shared information on customer demand and inventory and
upon mutually agreed conditions
Tests of Collaboration
Information Sharing – Yes!
Visibility into the future – Maybe!
The supplier obtains the EDI transactions from the Customer for Sales, Shipments, and Inventory on a daily or weekly basis through the EDI 852. He may also get the sales forecasts through the EDI 830. But typically the supplier generates his own DC level replenishment forecast based on the historical data. Finally, the supplier's VMI analyst may try to incorporate some promotional intelligence into the forecast through discussions with the sales team and in rare cases, with the customer's replenishment analyst.
The person ordering the VMI planner at the manufacturer knows the products. This translates into a more efficient replenishment plan.
VMI results in efficient ordering and delivery of new products. Because the DC level pipe-fill is known along with a reasoned guess on the replenishment volumes, VMI provides a more accurate forecast for a new product launch.
More visibility into Customer inventory levels provides better information to manage supply constraints.
Reduced customer administrative costs, since the replenishment work is transferred to the supplier. This is purely a benefit to the customer, but many a time this acts as a major catalyst for the establishment of a VMI relationship.
VMI – The Issues
Long-term forecasts are still generated through the supplier’s crystal ball. This is because the customer does not give much forecast guidance or intelligence on promotional or market events, unexpected retail or inventory volatility will hit in-stock levels.
Little collaboration on the forecast
The customer gives you the data and the inventory policy and the supplier does the rest!
The success of the program rests on the supplier’s creativity and initiative and a good internal consensus process with sales staff on the field.
How is Co-managed Inventory (CMI) different from VMI?
CMI is similar to VMI except the supplier manages the replenishment process and develops forecasts in the customer’s system. A key example of this process will be the supplier process adopted by Wal-mart as well as the JDA E3 process used by the Drug Chains like Eckerd, Rite-Aid, and CVS.
The customer provides system access to the supplier.
The supplier has visibility to POS at the store level, Store & DC inventory and reviews the information and generates an order in the customer's system.
The key difference is that the order placed by the supplier is still a recommendation and is not a firm order until approved by the customer. In a VMI process, the order generated by the supplier on the customer's behalf is a firm order to deliver product and bill the customer.
VMI and CMI - The Challenge
The traditional continuous replenishment process (CRP) activity does not truly generate a demand plan that can be integrated into the manufacturer’s Supply Chain for production planning purposes.
It can be too tactical and short-term oriented and typically focuses on the next two to four weeks.
The emphasis on order placement and replenishment based on near term activity can be considered a challenge.
Although VMI and CMI are constrained by criticisms of short-term focused and being too tactical, in practice they have been very popular because of their low cost to implement. The key is to leverage low-cost implementation while driving consensus and collaboration and bringing the focus on promotional planning and management.
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