VMI- Vendor Managed Inventory
From the retailer's perspective, service is usually assessed by measuring product availability. This is rooted in the simple notion that if a product is not there when the customer walks into the store, then a sale is lost. The consequences are particularly severe when a promotion is running; simply the cost of the lost sale may be compounded by the loss of goodwill. When planning, therefore, a retailer looks to the supplier for dependability. In their merchandising plans, retailers favor their best suppliers with more, and more attractive shelf space. Thus, a supplier known for reliability benefits from higher revenues. All else being equal everyone gains from improved service.
With VMI, coordination of replenishment orders and deliveries across multiple customers helps to improve service. A non-critical delivery can be diverted for a day or two to enable a critical delivery to another customer. Similarly, a smaller than usual replenishment to one customer may enable a larger than usual shipment to a customer in dire need.
With the ability to balance the needs of all partners, the supplier can improve the system's performance without jeopardizing any individual customer. Customers benefit from the assurance that they are assured that their most critical needs will get the most attention. Without VMI, the supplier has a difficult time prioritizing customer shipments effectively.
Service can be improved further by widening the scope of available solutions to a given problem. For example, in times of crucial shortage, inventory balancing across one customer's distribution centers (or even between customers) may be necessary. In some cases, rebalancing among customers may even be the most economical approach. This is not usually an option with out VMI, for neither suppliers nor customers can see the widespread disposition of inventory. With VMI, stock balancing can...