Vendor Managed Inventory (VMI) works by shifting the responsibility of inventory management from the customer to the supplier. Here’s how the VMI process typically works:

  • Collaboration and Agreement: The supplier and customer collaborate to establish the parameters of the VMI program. This includes setting inventory levels, determining order frequency, and establishing communication protocols.
  • Monitoring Inventory Levels: The supplier monitors the customer’s inventory levels using data from point-of-sale (POS) systems or other inventory tracking tools.
  • Forecasting and Replenishing Inventory: Based on the inventory levels, the supplier uses statistical forecasting methods and other data to determine when and how much inventory needs to be replenished.
  • Delivery of Inventory: Once the inventory has been replenished, the supplier delivers it to the customer’s location. The supplier may also be responsible for placing the inventory on the shelves or otherwise organizing it.
  • Communication and Reporting: The supplier and customer communicate regularly to ensure the VMI program is running smoothly. The supplier may provide regular reports on inventory levels, sales data, and other key performance indicators (KPIs) to help the customer make informed decisions.

By using VMI, the supplier can take on more responsibility for inventory management, which can lead to improved efficiency, reduced inventory costs, and increased customer satisfaction. The customer benefits by reducing the need for manual inventory management, improving inventory accuracy, and reducing stockouts. However, effective VMI requires a high degree of collaboration and communication between the supplier and customer, as well as reliable data sharing tools and processes.