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).
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