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Essay on VMI is the Future of Merchandising
The vendor-managed inventory (VMI) approach was developed to avoid some of the process problems identified above. A key technology component that has made VMI possible is the ability of supply-chain applications to manage inventories at retailer locations. Demand and supply now come together at the retail receiving location. This is frequently the distribution center, yet store-level VMI is also common. VMI practices and technology provide a broader view of the inventory-holding locations and pipeline activity, which gives the manufacturer better information for planning inventory deployment across the pipeline. It also allows the manufacturer to be more customer specific in its planning and to plan at a much lower level of detail. The key process activities in VMI reside primarily with the vendor or manufacturer. They involve the five steps described above.
- Assemble Data: The primary data driver for VMI programs focused on distribution centers is warehouse withdrawal data from retailer distribution centers. Some companies complement this with point-of-sale (POS) data so that store-level activity and inventory have greater visibility. Store-level VMI uses POS data as its primary driver. Complementary data on retail and manufacturer promotional plans and other drivers of volume variability also need to be available.
- Forecast Sales: The primary forecasting effort for most VMI programs is warehouse withdrawals from the retail distribution center. Store-level VMI is consumer focused. Retail customer-specific sales need to be reconciled with the overall market sales in the complementary aggregate forecasting process.
- Forecast Orders: Order forecasting is controlled by the manufacturer and generally works to agreed-on retail inventory targets and transportation cost objectives. This allows the manufacturer to plan inventory for specific customers.
Order Generation: The manufacturer controls the generation of purchase orders. These are driven by the store replenishment pull on the distribution center or actual consumer demand for store-level VMI....
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