Vendor Managed Inventory Versus Consignment Inventory.

1974 words - 8 pages

Inventory management has two very different, but effective methods: Vendor managed inventory, and consignment inventory. A company may choose to utilize either of these two methods to manage inventory. If a company is able to manage inventory, they will be better able to work the company's capital to the fullest extent. The following paper will identify the differences between the two as well as identify what type of company is best suited for each method.Definition.Vendor managed inventory (VMI) is a means of optimizing supply chain performance in which the manufacturer is responsible for maintaining the distributor's inventory levels. The manufacturer has access to the distributor's inventory data and is responsible for generating purchase orders. Under VMI the manufacturer receives electronic data (usually EDI or via the internet) that tells him the distributors sales and stock levels. The manufacturer can view every item that the distributor carriers as well as true point of sale data. The manufacturer is responsible for creating and maintaining the inventory plan. Under VMI, the manufacturer generates the order, not the distributor. (Williams, 1996).Consignment inventory (CI) is when the supplier places inventory at a customer's location and retains ownership of the inventory. Payment is not made until the item is actually sold. In other words, the supplier places some of his inventory in his customer's possession (in their store or warehouse) and allows them to sell or consume directly from his stock. The customer purchases the inventory only after he has resold or consumed it (Williams, 1996).Set up of Program/Software.VMI software application manages stock levels from various locations. With an endless supply of available stock, VMI software provides companies with complete list of inventory. Comergent is one of many companies which provide VMI software implementation and training (Comergent.com). On average, implementation of software and program setup can take up to 150 days.Consignment software will help keep track of inventory on-hand that the DC (Distributing Companies) companies do not own. Should product become sold then the product must be registered into the program in order to let the supplier know that the product has been sold and that payment is due.VMI Program set up entails a list of key items that must be followed in order to implement VMI properly. Upon accomplishing the listed items a SLA will establish acknowledging the responsibilities of both the vendor and the distributor. The following steps are typical but are usually followed in order to accurately implement VMI into a company. Consignment and Vendor managed inventory are used interchangeably in that set up and implementation procedures are followed in a similar manner. The major differential between consignment and vendor managed inventory is ownership of product.The first step in setting up VMI and Consignment software is to have senior sponsorship. This will...

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