In a well-developed Customer-Supplier relationship, some items of inventory may actually be managed at the customer’s facilities by the company that supplies them. These items of inventory (and this practice) are called Vendor Managed Inventory (VMI).
With VMI, the customer company effectively outsources part of the inventory management function to the supplier company.
VMI is not applicable for all items, however three common examples of areas where it can work very well are:
- Retail (Fast-moving consumer goods continually re-stocked);
- Consumables (with manufacturing for example, items used often in supporting the production resources; ranging from gloves to toilet roll, to common maintenance filters etc for machines); and
- High volume, low value items (which are commonly classed as C within ABC analysis; such as nuts, bolts, fasteners).
A typical VMI implementation might look like this:
Figure 6: VMI Process Illustration (source www.currentdirections.com)