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VMI Explained

By  Becky Murphy  ·  1 minute read

What is VMI?

Vendor-managed inventory (VMI) is an agreement between a company and its supplier that grants the supplier full responsibility to continually replenish on-site inventory of predetermined items.

It starts with identifying frequently used parts. By creating a list and generating EAU (estimated annual usage) of each part, the supplier can determine bin quantity.

Most VMI systems are based on a double-bin system. What is a bin you ask? Each part is stored in two barcoded bin – each the same.

  • When Bin 1 is empty, Bin 2 replaces it.
  • Bin 1 becomes Bin 2 and vice versa.

During the vendor visit, the barcodes of empty bins are scanned, sent to vendor customer service and replacement inventory is provided during the following visit. Bin 1 becomes Bin 2 and vice versa.

This system eliminates generating purchase orders, inventory monitoring, and requesting expedites from suppliers. VMI is designed to lighten the load of procurement departments by managing inventory levels and replenishing based on real-time data, ultimately leading to an increase in efficiency and cost savings.