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IT Challenge: Is VMI right for midsized manufacturers?

In this IT Challenge, we'll explore the viability of vendor-managed inventory (VMI) for midsized manufacturers.

The IT Challenge of the Month for September 2011:

My business is considering moving to a vendor-managed inventory (VMI) model. Can VMI be a successful inventory management model for a midsize manufacturer and if so, what questions should we ask to determine if VMI makes sense for us?

Do you have a solution to this challenge? Have you encountered a similar issue at your business? If so, please contact the editors and share your suggestions or experiences. 

IT Challenge respondents will receive a free copy of a new book from SAP Press.

And be sure to check back here all this month -- we'll be posting solutions from experts and readers as we receive them.

From industry expert Steve Phillips:

Vendor-managed inventory is a model many organizations have used successfully to reduce inventory costs and increase service levels. For suppliers, it can provide better visibility and the opportunity to reduce operating cost (including expediting, unplanned overtime and premium freight charges).

However, there are two important items to address before jumping into VMI. First, what are the VMI policies, procedures and processes that will govern the relationship? For example, how will replenishment occur? What are the rules for inventory levels, order fulfillment and inventory turns?

Once the VMI process is decided, there’s a big kicker: Do you and the vendor have the capabilities to achieve the desired VMI process? Many companies find out later that they do not have the systems or resources to achieve the full benefits without incurring a lot of additional cost. For example, are modifications to your ERP system required? Is EDI now required? Are third-party services or software necessary?

This was last published in September 2011

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