Consumption-driven inventory management
The Vendor Managed Inventory (VMI) management model originated in the USA in the 1980s, under the impetus of major groups keen to reduce their logistics costs and improve customer satisfaction. To achieve this, they developed the idea of ECR (Efficient Consumer Response). It was on this basis that VMI, as we know it today, was established. It wasn't until the 1990s that VMI became a success in France, particularly with the mass retail sector. In a constant drive to reduce inventory, the retail sector has turned to the VMI method to adjust stock levels as closely as possible to actual consumption.
Vendor Managed Inventory (VMI) is a method of managing inventory levels based on actual product consumption at distribution points. In other words, the company marketing a product only holds stock dedicated to sales. The management of goods flows, from production sites to distribution outlets, is handled entirely by the supplier, on the basis of information supplied by the distributor (stock data, sales data, forecasts).
A method of managing stock levels based on actual product consumption at distribution points
VMI helps to optimize supply, as only the quantity of products directly destined for sale is added to inventory. As a result, inventory is reduced, and storage space is freed up.
Reducing inventory and floor space also means cutting related costs. The VMI prevents any risk of excess or unnecessary stock due to poor anticipation of demand. These wasteful elements generate considerable costs. Excess stock means greater investment in the logistics floor, and additional expenditure on equipment and human resources to manage logistics warehouses. The costs incurred for overstocking also impact on capital assets; indeed, each product stocked reduces the company's cash flow.
One of the greatest fears of retailers is the risk of stock-outs, synonymous with customer dissatisfaction and lost sales. In principle, VMI makes it possible to prevent the risk of stock-outs. However, this situation cannot be entirely ruled out. For this to happen, communication between distributors and suppliers must be absolutely perfect. This is not always the case. The effectiveness of VMI depends on the reliability of the data made available to the manufacturer by the distributor.
Another disadvantage of VMI is that the distributor loses complete control of the supply chain to the supplier. This can leave them feeling somewhat powerless when it comes to managing their supplies. It is the supplier who decides, for example, on quantities to be supplied, delivery dates and the management of transport services. VMI therefore presupposes a relationship of trust between supplier and distributor. Otherwise, the supplier can, for example, take the liberty of delivering the quantity of his choice to the distributor. What's more, the implementation of a VMI implies that the distributor communicates confidential sales data to its suppliers, which places it in a "vulnerable" position.
As its name suggests, VMI is an inventory managed by the supplier. It involves collaboration between a distributor and a supplier to optimize product availability at minimum cost. To be effective, VMI requires a strong partnership between the two parties
Bext Logistics Software
The boom in e-commerce, omnichannel sales, changing purchasing habits and consumer expectations are all having an impact on logistics, and especially on warehousing, which is on the front line. BEXT WS frees you from unforeseen events such as stock-outs, discrepancies and picking errors; the solution optimizes your m2, your resources and digitalizes your processes for impeccable customer service.
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