general Information

VMI Vendor Managed Inventory

Integrating processes – expanding the supply chain
The Internet offers new ways of doing business, creating business processes that extend beyond the company itself. Globalization is boosting many different developments and changing the face of business processes worldwide. The result for our business is completely new forms of process integration between producers and suppliers. What this means is that we need to design efficient logistical networks and optimum process integration in the context of a supply chain. The result is that a number of different concepts such as “VMI – Vendor Managed Inventory” are becoming additional components of a network of dynamic business relations that can be managed on a realtime basis using suitable information systems. VMI is therefore one of the new challenges in an extended supply chain management environment.
Everyday analogy
Imagine that the raw material or product you need is permanently available to you and you don’t need to worry about arranging for more. Well, it’s not an illusion but already reality. Just take an example from our daily lives.
You have a need for water and create a demand by turning on your tap. The utility company – your supplier – then tops up your water supply ensuring that there is enough water available next time too. The utility company owns and manages the water and makes sure that you always have enough to hand.
You don’t need to place an order to buy individual units of water – you simply need to sign a service level agreement. And you are not invoiced for every single glass of water. The utility company simply totals up the amount due and requests payment at predefined intervals.
VMI is about the supplier providing the customer with a service, whereby the supplier takes charge of replenishment planning. This means that the supplier views the consumption data for a given material at agreed intervals with the help of a VMI system, automatically replenishing the customer’s stocks when necessary. Measuring sensors are used to monitor the quantity of material stored in the tank, with the data being transferred to the Internet-based VMI system. As soon as a particular replenishment threshold is reached, an order request is generated automatically. This is then transferred either manually or automatically via the interface to the supplier’s ERP system (e.g. SAP R/3) where a corresponding replenishment order is created.