What is Vendor Managed Inventory (VMI)?

An emerging trend in the supply chain world is the disappearance of traditional EDI purchase orders (850s).  This is due to a new way of doing business called Vendor Managed Inventory (VMI).  What does this mean for the supplier?  Before I address that, let’s look at what Vendor Managed Inventory is.  The website www.vendormanagedinventory.com defines it as, “A means of optimizing Supply Chain performance in which the manufacturer is responsible for maintaining the distributor’s inventory levels.”  So what this means for the supplier or manufacturer is that rather than receiving the 850, which is the traditional EDI purchase order, they will instead receive the EDI 852 Point of Sale Report.  Based on the sales data the 852 Point of Sale Report provides, they will send the appropriate product to replenish the shelves.  The retailer then receives an EDI 855 purchase order acknowledgement from the supplier, which serves as notification of the order.  Occasionally, the 856 Advanced Ship Notice serves this purpose.

One of the implications for the supplier is that many EDI packages have turn-around documents that can easily be sent back in response to an EDI 850 PO.  In a VMI system, there is no EDI 850 which means transaction sets such as the EDI 810 Invoice and EDI 856 ASN must be from scratch documents (keyed in).  In a less automated system this means more data entry for the supplier.  Also, the data contained in the EDI 852 Point of Sale document MUST be accurate or the entire process breaks down.  All this being said, VMI systems offer many benefits too.  A well managed VMI relationship results in better forecasting, therefore a more accurate inventory that matches the demand for the product.  This increases sales for both the retailer and the supplier, a win-win for everyone.  Also, because of the improved communication Vendor Managed Inventory offers, both parties benefit from stronger trading relationships.  The end customer benefits from always having product when they want it and the end customer is who everyone wants to please. 

Aurora Technologies/EDI Support, Inc. specializes in EDI implementation and data integration solutions.  For more information, please contact Shandra Locken, shandra@edisupport.com or 800-404-9182 x25.