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All About Vendor Managed Inventory

Wednesday, July 11, 2012

Does Vendor Managed Inventory (VMI) Sound Like Something Your Company Could Benefit From? Read on to Learn All About VMI and What Part EDI Plays in the Process.

Wouldn’t it be great if every time the roll of toilet paper was near the end, it would magically be replenished? Vendor Managed Inventory (VMI) is defined as having the supplier create orders based on the demand information from the customer, so when the toilet paper runs out, it can be replenished. EDI is an important part of this process. Some of the EDI documents that are utilized in VMI are:

852 Product Activity
850 Purchase Order
855 Purchase Order Acknowledgement
856 Advance Ship Notice
810 Invoice

How Vendor Managed Inventory works: an 852 Product Activity document is created by the customer and transmitted to the supplier. The 852 contains quantity on-hand, back orders, returns and sales volumes. 852’s can be exchanged weekly or daily, depending on the agreement between the supplier and customer. When the vendor receives the 852 data, the quantity available is compared to the established reorder quantity, and the supplier creates an order. The orders are sent to the customer using an EDI 850 Purchase Order. The EDI 855 Purchase Order Acknowledgement is then created by the supplier to let the customer know what quantities of product they can ship. The supplier can also utilize an 856 Advance Ship Notice to let the customer know when the orders ship and the quantities shipped for each item. An EDI 810 invoice is then created by the supplier to send to the customer for payment.

Some of the benefits of using VMI are a reduced inventory, reduced stock-outs, reduced returns and an increase in sales. And, as we all know, anything that leads to a lower bottom-line is a positive thing in management’s eyes!

Using Vendor Managed Inventory requires efficient and accurate transfer of information to all members of the supply chain. EDI/HQ software has the ability to handle all aspects of VMI. If VMI is something you are thinking about, call a 1EDI Source Solutions Consultant to discuss what EDI/HQ software has to offer.

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