VMI and CMI
are examples of a more passive collaboration between the customer
and the supplier. Although some relationships in the past feature
more active collaboration with a text-book style VMI, these are
more an exception than the rule.
DemandPlanning.Net recommends its customers a modified VMI that
incorporates a more rigorous focus on promotional planning, event
modeling and sales-force oriented collaboration. Our implementation
of promotions-focused VMI will help you drive better integration
into your supply chain while achieving your customer's stated goals.
VMI – Vendor Managed Inventory
Vendor Managed Inventory is a program in which:
- the supplier generates the customer’s order,
- based on shared information on customer demand and inventory
- upon mutually agreed conditions
Tests of Collaboration
- Information Sharing – Yes!
- Visibility into the future – Maybe!
The supplier obtains the EDI transactions from the Customer for
Sales, Shipments, and Inventory on a daily or weekly basis through
the EDI 852. He may also get the sales forecasts through the EDI
830. But typically the supplier generates his own DC level replenishment
forecast based on the historical data. Finally, the supplier's VMI
analyst may try to incorporate some promotional intelligence into
the forecast through discussions with the sales team and in rare
cases, with the customer's replenishment analyst.
- Person ordering, the VMI planner at the manufacturer, knows
the products. This translates into a more efficient replenishment
VMI results in efficient ordering and delivery of new products.
Because the DC level pipe-fill is known along with a reasoned
guess on the replenishment volumes, VMI provides a more accurate
forecast for a new product launch.
More visibility into Customer inventory levels provide better
info to manage supply constraints.
Increased sales at retail due to better in-stock levels. This
also results in Inventory Optimization for the customer. However,
note that the better in-stock levels assume that forecast volatility
is known through some sort of collaboration process or information-gathering
mechanism. (See this as an issue below.)
a. Improved DC In-Stock
b. Improved Retail In-Stock
Reduced customer administrative costs, since the replenishment
work is transferred to the supplier. This is purely a benefit
to the customer, but many a times this acts as a major catalyst
for the establishment of a VMI relationship.
VMI – The Issues
Long-term forecasts are still generated through the supplier’s
crystal ball. Because the customer does not give much forecast
guidance or intelligence on promotional or market events, unexpected
retail or inventory volatility will hit in-stock levels.
Little collaboration on the forecast (very rarely)
Customer gives you the data and the inventory policy and the
supplier does the rest!
The success of the program rests on the supplier’s creativity
and initiative and a good internal consensus process with sales
staff on the field.
How is Co-managed Inventory (CMI) different from VMI?
CMI is similar to VMI except the supplier manages the replenishment
process and develops forecasts in the customer’s system.
A key example of this process will be the supplier process adopted
by Wal-mart as well as the JDA E3 process used by the Drug Chains
like Eckerd, Rite-Aid and CVS.
Customer provides system access to the supplier
Supplier has visibility to POS at the store level, Store and
Supplier reviews info and generates order in the customer's
The key difference is that order placed by the supplier is
still a recommendation and is not a firm order until approved
by the customer. In a VMI process, the order generated by the
supplier on the customer's behalf is a firm order to deliver
product and bill the customer.
VMI and CMI - The Challenge
The traditional continuous replenishment process (CRP) activity
does not truly generate a demand plan that can be integrated
into the manufacturer’s Supply Chain for production planning
Too tactical and short-term oriented and typically focuses
on the next two to four weeks.
More emphasis on order placement and replenishment based on
near term activity
Although VMI and CMI are constrained by criticisms of short-term
focused and being too tactical, in practice they have been very
popular because of their low cost to implement. The key is to leverage
the low-cost implementation while driving consensus and collaboration
and bringing the focus on promotional planning and management.
If you would like to find out more details on our modified VMI
model and implementation, please contact