What is VMI? How to manage?

The concept of VMI and its application in logistics management [logistics knowledge]

Concept and application of VMI

In the whole supply chain that quickly responds to users' needs, the position of product distribution is becoming more and more important. However, the traditional distribution and inventory management model can not meet this requirement. For example:

A\ At the 98' supply chain management seminar held in the UK, a participant mentioned that in his European grocery company, it takes 150 days to get raw materials from the fishing dock, while the whole process of product processing only takes 45 minutes.

Take the cereal in American food industry as an example. Products from the factory to the supermarket, through a series of wholesalers, distributors and freight forwarders with their own warehouses, actually need 104 days.

C\ According to other statistics, in the value-added process of the supply chain, only 10% of the activity time is value-added, and the other 90% of the time is wasted.

An important reason for these problems is the backward distribution and inventory management methods. Traditionally, because every link in the supply chain manages its own inventory, has its own inventory control objectives and corresponding strategies, and lacks information communication, monopolizing inventory information will inevitably lead to the distortion and time lag of demand information, making suppliers unable to meet users' needs quickly and accurately.

In the environment of supply chain management, the activities of all links in the supply chain should be carried out at the same time, but the traditional inventory and distribution management ideas obviously can not meet this requirement. In recent years, a new supply chain inventory management method has emerged abroad? VMI breaks the traditional decentralized inventory management mode, embodies the integrated management idea of supply chain, and adapts to the requirements of market changes. It is a new and representative inventory management idea.

What is VMI?

VMI-the abbreviation of vendor managed inventory, which can be translated as "vendor managed inventory". Specifically, VMI is a cooperative strategy aiming at the lowest cost for both users and suppliers. The supplier manages the inventory under a * * * agreement, and constantly monitors the implementation of the agreement and modifies the content of the agreement, so that the inventory management can be continuously improved. The concept of VMI is completely opposite to the traditional inventory management mode of RMI (Retailer Managed Inventory). VMI, as a brand-new concept of inventory management, plays a particularly important role in the distribution chain and has been paid more and more attention.

Why do you need VMI?

Since 1980s, the global market competition has become increasingly fierce. In order to improve competitiveness, enterprises constantly seek various measures to improve the response speed to market demand. Supply chain management emphasizes the core competitiveness of enterprises and the establishment of long-term cooperative partnership between enterprises. On the basis of the full development of information and knowledge sharing and cooperation, supply chain partners will seek deeper integration. They began to exchange some decision-making power, job responsibilities and resources to strengthen cooperation and jointly explore the market. One partner in the supply chain may be more suitable to implement the decision-making power usually owned by another partner. If this decision-making power is transferred from this partner to another more suitable partner, the efficiency of the whole supply chain will be improved.

From this perspective, VMI is the inevitable trend of supply chain management development. It is self-evident that the gradual amplification of demand will lead to abnormal fluctuations in inventory in all links of the supply chain. As a solution to this problem, VMI means that the downstream enterprises in the supply chain give up the inventory management right, which seems to be a loss to them, but what they get from it is far greater than what they lose.

The benefits of VMI to downstream enterprises in the supply chain are obvious. Compared with RMI, VMI overcomes the limitations of downstream enterprises' own technology and information systems. With the rapid development of core business in all aspects of the supply chain, the upstream of the supply chain also puts forward higher requirements for the downstream logistics management (including inventory management). However, due to the limitation of technology and information system, the original self-operated inventory management system of downstream enterprises often lags behind seriously, which restricts their business development. After the implementation of VMI, the inventory is managed by the upstream enterprises in the supply chain, and the downstream enterprises can freely develop their core business.

VMI can also meet the needs of downstream enterprises to reduce costs and improve service quality. Compared with downstream enterprises managing their own inventory, suppliers are more experienced and professional in managing their own products. Users' self-management of supplier inventory is likely to lead to wrong product storage and replenishment decisions. Suppliers can provide a series of services including software, professional knowledge, logistics equipment and personnel training. The service level of enterprises in the supply chain will be improved because of VMI, at the same time, the cost of inventory management will be reduced, and the inventory investment of downstream enterprises will be greatly reduced.

At the same time, VMI, which originated from the idea of supply chain management, pursues a win-win result, which will also bring many benefits to suppliers of upstream enterprises in the supply chain. VMI allows suppliers to obtain the necessary business data of downstream enterprises and directly contact with the real demand information (transmitted through electronic data interchange (EDI)). Suppliers use this information to adjust the inventory level, so as to finally eliminate the extra cost caused by unexpected short-term product demand. At the same time, the enterprise's demand for safety inventory has also been greatly reduced. On the other hand, VMI can greatly shorten the transaction time between supply and demand sides, enable upstream enterprises to better control their production and business activities, better meet the needs of users, and thus improve the flexibility of the entire supply chain.

Generally speaking, VMI can bring the following benefits:

1, reduce inventory;

2. Accelerate the project implementation process;

3. Reduce the purchasing unit price through collective purchasing;

4. Reduce the total purchase amount through the establishment of demand cooperation relationship;

5. Reduce the number of suppliers;

6. Save purchasing time by improving the process between suppliers and between suppliers and users;

7. Improve the continuous improvement capability of the supply chain;

8. Strengthen the partnership of suppliers;

9. Reduce the risk of inventory expiration;

1 1. Cooperate with suppliers to improve product performance and quality;

12. Promote the communication between suppliers and users through the authorization of suppliers by users;

13. Reduce transaction costs such as purchase orders, invoices, payment, transportation and receipt.

Influence of VMI on distributor's operation

In the development of distribution channels in China since the reform and opening up, the relationship between manufacturers and distributors is basically a contract-based transaction relationship, and distributors are operators who earn the difference by buying low and selling high. In this relationship structure, distributors control their own inventory, which is an important weight for them to deal with suppliers and retailers. The distributor's inventory management focuses on optimizing the single inventory cost, and determining the inventory scale from the storage cost and possible sales loss. From the point of view of single inventory, this inventory management method has certain adaptability, but it is obviously uneconomical in the whole supply chain.

Because of this, with the development of supply chain management, the role-playing of distributors has also begun to change greatly. The business practice of some multinational companies shows that they are trying to transform the existing traditional dealer network characterized by earning bid-ask spreads into strategic partners who provide services and get service commissions to serve target customers. At this time, the main source of dealers' profits will no longer be products, but services provided for products. Manufacturers and distributors enjoy the information and participate in making each other's business development plans (the higher level of their development is CPFR, that is, collaborative planning, forecasting and replenishment). Retailers are no longer a member of the customer network, and manufacturers can also control retailers relatively directly, obtain valuable retailer information from distributors' databases, and help distributors and retailers develop their business.

VMI will greatly promote the transformation from distributor network to service provider network. As a member of the service cooperation network, dealers will enjoy the strong support of manufacturers. Manufacturers assist distribution agencies to manage internal commodity inventory, and distributors can invest the same working capital to achieve greater sales through dynamic control of the safety level of stored commodities; Dealers no longer master the warehouse and manage the inventory, which makes the energy and risk they invested in inventory management more effectively undertake the service functions such as market coverage, and the two sides are closely integrated.

The implementation of VMI also needs to consider the following issues:

1. Warehouse keepers of downstream enterprises in the supply chain may think that VMI is a threat to their position in the enterprise, so they should do their own work well to ensure the effective implementation of VMI;

2. Draw up a general inventory variety and supplementary inventory plan, discuss which inventory varieties VMI contains, how many products to manage first, and when to add new products;

3. Where is the warehouse built, whether its storage area can ensure the import and export of products and the growing demand for products, and what tools suppliers use to deliver goods, etc.;

4. Who will manage the inventory on behalf of the supplier, and the standards that need to be met in terms of management ability, reputation, business scope, past experience, financial status and human resources;

5. How will the supplier meet the delivery time and place of all participants, how will the inventory be delivered to the factory, and how will the inventory be safe?

6. What kind of information system and network platform can meet the requirements of information integration and * * * sharing between the supply and demand sides?

7. An evaluation system suitable for evaluating supplier management inventory performance;

8. Participate in the implementation of VMI supplier qualification standards, the selection of potential qualified suppliers, supplier training and exit plan;

9. Draft the return terms, including the preparation time of return, freight payment, etc.

10, drafting exception clauses, including what kind of accidents need to be reported, reporting channels, time intervals, etc. ;

1 1. Draft payment terms, including payment method and preparation of relevant documents;

12. Draft penalty clauses, such as the supplier's overloading or empty containers, and what additional expenses he will bear; If the information provided by the user is insufficient or misleading, which leads to the supplier's error, how to share the loss; If the user cancels the product and the supplier has already delivered the goods due to information channels or other reasons, who is responsible for this batch of inventory, etc.

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