Mobility and Vendor Managed Inventory

Vendor Managed Inventory (VMI) is a means of optimizing supply chain performance by making the manufacturer responsible for a distributor's inventory levels. VMI involves the distributor reporting sales data to the manufacturer either through a type of an electronic data transfer (XML, EDI or the Internet) or by providing the manufacturer access to point-of-sale data for the purposes of determining inventory levels. Distributors benefit from VMI by reducing requisition-to-order costs, decreasing stock outs, improved fill rates, and decreased inventory costs. Manufacturers benefit from reductions in ordering errors, better forecasting, and more efficient promotion planning. Both distributors and manufacturers have seen significant return on their investments in VMI.

The Internet makes it possible for two businesses to virtually connect with each other. This has caused a trend to expand the VMI solution from a distributor/manufacturer relationship to a relationship between the distributor and the end consumer of the goods offered by the distributor. Businesses today are looking for ways to decrease their requisition-to-order costs, increase their compliance with purchasing contracts, and decrease their inventory carrying costs. Those businesses that can afford it have put in sophisticated procurement systems to help them solve these problems for those products that are core to their business. However, every business has a series of commodity products that are used daily and that are time consuming and costly to manage. Some of these goods include office supplies, printer supplies, building maintenance and repair items, medical supplies, and hospitality supplies.

Distributors of these products (and products like them) find themselves in highly competitive markets that are typically differentiated by price and service. Because of the competitive market that these distributors are in, the efficiency of the supply chain is crucial to their ability to compete and make money. It is the customers need to drive costs out of handling these products, combined with the vendors need to run a tight supply chain that is feeding a trend towards VMI solutions being offered by distributors to their customers.

Usage issues

The most important part of any VMI system is the ability for the consumer of the product to report their usage back to their supplier. Distributors and manufacturers have systems in place and the motivation to make them work together in such a way as to make gaining user compliance easy. However, there are far too many proprietary business systems available for distributors to effectively implement a VMI solution that their customers will actually use. This forces the distributor to implement a solution that relies on their staff members taking physical inventories in order to determine consumption that in turn is used to determine orders. Having field salespeople take physical inventories at customer locations will increase the cost of sales for the distributor, which can more than offset the benefit of a VMI solution.

For VMI systems that require the consumers to report usage, it is important that this method be as simple to use as possible. There are three possible ways in which to report consumption: