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An In Depth Look at Vendor Managed Inventory

Life at the office is full of responsibilities. You have meetings to attend, deadlines to meet, clients to contact — the list goes on. The last thing you need to worry about is inventory. That’s where the VMI business model can help. What is VMI and what can it do for your organization? The 1 EDI Source experts take a closer look in the sections below.

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 CodeWhat it MeansPurpose
EDI 850Purchase OrderUsed to place an order
EDI 852Product Activity DataProvides trading partners with product SKU activity data
EDI 856Advanced Shipping Notice SpecificationsInforms customers of an incoming order
EDI 860Order Change RequestRequests an update to the details of the original purchase order
EDI 997Functional AcknowledgementConfirms 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!

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Discover even more about vendor managed inventory in our Knowledge Center where you will find useful articles, downloadable guides and more!
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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.

Amazon EDI Compliance

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Walmart EDI Compliance

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EDI Buyer’s Guide

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Cost of EDI Implementation

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