Vendor-Managed Inventory (VMI)
When retailers managed inventory, one of the methods for inventory control was to use some form of a trigger-point method replenishment program. That is, when an item in stock is depleted to the level of the trigger point quantity, a purchase order is placed on a vendor to replenish the item. In such systems, retailers make their own forecast and inventory control rules.
Alternately, retailers will replenish on a fixed cycle i.e. once a week basis and order an amount to fill designated shelf space for an item. According to the International Mass Retail Association, over 60 percent of hard goods and almost 40 percent of soft goods are under replenishment programs managed by retailers.
Although retailer-managed replenishment programs are expected to continue, there are also expected to be a substantial growth in vendor-managed inventory (VMI) that is continuous replenishment. With electronic data interchange (EDI) and point of sale data, vendors can be as aware of what is on the retailer's shelf as the retailer itself.
Retailers such as Wal-Mart and Toys R Us oallow the vendors to be in charge of their own inventories, deciding on what and when to ship. Ownership of the inventory would shift to the retailer once the product is received, although some retailers would like to reach the point where they don not even own the goods sitting on their shelves.
The increase availability of information is permitting new alternatives for managing the flow of goods in the supply channel to emerge. Vendors require that their customers supply them with information about product sales, current inventory levels, dates for receipt of goods and dead stocks as well as returns.
Information flows to the vendor through an EDI or any other electronic-based networks so that it is up-to-date at all times. Vendors sometimes incur greater costs for VMI, for example absorbing the transportation costs, but feel that the additional costs are covered by increased sales that are realized from the use of VMI.
Alternately, retailers will replenish on a fixed cycle i.e. once a week basis and order an amount to fill designated shelf space for an item. According to the International Mass Retail Association, over 60 percent of hard goods and almost 40 percent of soft goods are under replenishment programs managed by retailers.
Although retailer-managed replenishment programs are expected to continue, there are also expected to be a substantial growth in vendor-managed inventory (VMI) that is continuous replenishment. With electronic data interchange (EDI) and point of sale data, vendors can be as aware of what is on the retailer's shelf as the retailer itself.
Retailers such as Wal-Mart and Toys R Us oallow the vendors to be in charge of their own inventories, deciding on what and when to ship. Ownership of the inventory would shift to the retailer once the product is received, although some retailers would like to reach the point where they don not even own the goods sitting on their shelves.
The increase availability of information is permitting new alternatives for managing the flow of goods in the supply channel to emerge. Vendors require that their customers supply them with information about product sales, current inventory levels, dates for receipt of goods and dead stocks as well as returns.
Information flows to the vendor through an EDI or any other electronic-based networks so that it is up-to-date at all times. Vendors sometimes incur greater costs for VMI, for example absorbing the transportation costs, but feel that the additional costs are covered by increased sales that are realized from the use of VMI.
