An In Depth Look at Vendor Managed Inventory
What is VMI?
You’ve probably heard the acronym “VMI”, but what does it mean? VMI stands for Vendor Managed Inventory. This business model occurs in two steps:
- The buyer of a product provides information regarding a product’s current inventory to a vendor.
- The vendor takes full responsibility for maintaining the supply of the inventory of the product. This usually occurs at the buyer’s consumption location.
This process lessens the chances of the buyer running out of supply of the product. It also reduces inventory in the supply chain.
Benefits of Utilizing Vendor Managed Inventory
Thanks to vendor managed inventory, your business can thrive in a number of ways. Among endless advantages, some of the key benefits you can experience include:
- A reduced chance of unintentionally running out of stock of a good.
- Efficient, effective communication regarding orders and business needs.
- Less risk of human error occurring throughout the process of restocking inventory.
- Greater ability to supply customers with what they want, when they want it.
Vendor Managed Inventory & EDI
When a buyer and supplier decide to use vendor managed inventory, they agree to follow a set policy for:
- Transaction costs.
- Inventory turns.
- Fill rates.
EDI Transaction Standards
A useful tool like EDI acts as a platform to monitor activity with measurements against those policy standards. By adjusting the demand and supply gaps, EDI helps make sure the buyer has the required level of inventory. It also informs the supplier and buyer when measurements fall outside acceptable ranges or unusual issues occur like missing or incomplete data. The table below shows some of the EDI codes most frequently used with vendor managed inventory.
| EDI Code | What it Means | Purpose |
|---|---|---|
| EDI 850 | Purchase Order | Used to place an order |
| EDI 852 | Product Activity Data | Provides trading partners with product SKU activity data |
| EDI 856 | Advanced Shipping Notice Specifications | Informs customers of an incoming order |
| EDI 860 | Order Change Request | Requests an update to the details of the original purchase order |
| EDI 997 | Functional Acknowledgement | Confirms receipt of the purchase order |
Utilize the Vendor Managed Inventory Process with 1 EDI Source Software
If you’re ready to perfect your supply chain process with vendor managed inventory, 1 EDI Source is here to help. Our professional services team can assist you with meeting the requirements of your trading partners in the most effective manner. We’re here to help you create and adopt an approach that addresses your needs for security, communications protocols, integration issues, transaction formats and more. To learn more, contact 1 EDI Source today!
Learn More About Vendor Managed Inventory
With the help of vendor managed inventory backed by EDI, a supplier-buyer relationship can thrive. Discover more about this business process in these 1 EDI Source resources.