More broadly, VMI eliminates the need for intermediaries, thus improving communication, inventory management, and the accuracy of inventory and forecasting. VMI allows buyers to receive inventory on the day it’s required, while the supplier-held buffer stock enables agile buyer decisions when faced with supply chain disruptions. Similar concepts, but VMI usually has a much greater level of collaboration to improve overall efficiency. In a VMI, vendors actively manage the supply of inventory to target levels based on the buyer’s forecast and actual consumption, while consignment inventory relates to inventory owned by the vendor but held at the buyer’s warehouse and the buyer determines replenishment rates. What is the difference between VMI and Consignment Inventory? While the supplier maintains upstream lead times and visibility, the buyer’s main focus is the delivery of the material to its final destination for production, enabling the redeployment of resources into manufacturing, demand planning, sales, and other crucial areas. By overseeing a buyer’s inventory and supply chain management, vendors can manage the greater portion of the supply chain, from sourcing and identifying trends to delivery. VMI creates a symbiotic relationship between buyer and supplier, enabling close collaboration for mutual benefits while shouldering the shared risk. Consequently, the supplier manages the upstream supply chain to the point of delivery to the buyer, and it’s the buyer’s responsibility to provide accurate, timely information for forecasting. The supplier uses the data to determine the order size to replenish the amount of inventory held in VMI. With VMI, the buyer shares their inventory, demand data, and delivery parameters with the supplier. What is the difference between VMI and traditional inventory management? Post-delivery, the supplier must replenish the goods to a specified level, often to meet a company target, minimum/maximum level or provide 2-4 weeks of average consumption. As the buyer pulls and consumes the goods, the title passes to the buyer and the supplier can invoice the buyer. Suppliers are then required to hold approved goods until the buyer requests delivery. This provides some elasticity in the supply chain to ensure that variances in production demand can be accommodated and that the delivery of goods is not subject to transit delays since they are co-located near the production site.Īs buyers source components from several suppliers, they often implement a VMI program at a third-party warehouse near the production or assembly location. Many large companies have instituted VMI programs because they benefit from the postponement of goods until they’re needed in production. VMI is an integration process whereby material vendors manage as many factors of the supply chain as possible. We’ll conclude by evaluating the advantages of VMI for buyers and suppliers and present Taulia’s enhanced VMI offering. This article elucidates VMI, starting with a concise definition before discussing the difference between VMI and traditional inventory management. VMI streamlines inventory management and order fulfillment, benefitting both suppliers and buyers. As demand for the movement of goods across the globe and rapid delivery expectations become the norm, businesses seek ways to simplify their supply chain management.
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