VMI has many definitions.  Many define it as  “vendor managed inventory” but the definition is broader.  In today’s business world it is outsourcing non-core functions to an organization that is a core competency.  The objective is to improve productivity, speed to market by eliminating activities and reducing procurement cost.

VMI has been used effectively in large multi product manufacturing and service companies.  Typically, as much as 70% of their cost of goods is represented by purchased products.  Those products fall into the 80/20 rule.  Most companies effectively manage the 20% of the products that yield 80% of the total spend.  It is the balance of the products that cause problems (stock outs).

VMI has many benefits.  It improves the supply chain process.  It fully supports lean production processes.  It reduces procurement cost, which includes inventory investment, non-value activity and most importantly reduces downtime.  It helps optimize the supply chain.

For a company to implement a VMI program, it must be committed to meaningful change.  They must establish clear objectives then find a partner who has demonstrated the ability to implement programs for similar companies.