Vendor managed inventory: check the replenishment plan

Vendor managed inventory (VMI) gives a supplier responsibility for deciding when and how much to replenish for agreed items. The buyer shares the stock and demand information needed for those decisions and agrees the operating limits. For a manufacturer buying components, the useful question is whether the supplier's proposed deliveries keep usable material available without building unwanted stock.

A proposed delivery can solve a shortage and still break an agreed stock ceiling. Check the dated plan before you authorize the exception.

What changes when a supplier manages inventory?

Define the item, site and decision rights. Who prepares a proposal, who releases the order, and which changes still need your approval? Also agree who records receipts, consumption, stock corrections and quality holds. Sharing a stock report does not settle those responsibilities.

VMI and consignment describe different decisions. VMI concerns replenishment responsibility; consignment concerns ownership. Infor's VMI documentation distinguishes planning, warehouse management and financial ownership. Specify ownership, payment and obsolete-stock responsibility in the agreement rather than assuming the VMI label settles them.

Start with recurring items whose usage, supply constraints and data your team can explain. WIKA's operating offer, for example, calls for jointly selecting suitable items and minimum/maximum stocks. Assess each supplier's delivery capability, the cost of running the arrangement and the consequence of a missing part. VMI does not make safety stock unnecessary or guarantee availability.

Define what the stock limits mean

A minimum can mean an order trigger, a warning threshold or a floor the supplier must protect. A maximum can apply to physical stock, usable stock or a calculated inventory position. Those are different rules. The manufacturing VMI research by Van den Bogaert and Van Jaarsveld identifies ambiguity around stock limits and differences in supplier behavior.

For each item and location, record the stock basis, units, measurement times, demand horizon, data timestamp and exception owner. Agree how quickly both sides must respond when an updated plan breaches a limit. Use the reorder-point guide if your team is choosing an order trigger; a trigger must allow time for replenishment.

Worked example: one receipt, two constraints

This hypothetical example uses pieces of one approved component at one site. The review takes place after Monday's movements have finished. The counted balance reconciles to the ERP: 400 pieces physically onsite, of which 300 are quality-released and 100 remain held. The held pieces stay unavailable throughout the example. Check an unexplained stock difference with cycle counting before using it to replenish.

The following are illustrative agreed rules, not default VMI settings:

The 600-piece usable-stock ceiling is not the site's physical storage capacity. The 100 held pieces also occupy space. Receiving must separately check the space and handling needed for any revised delivery.

With the existing Friday receipt unchanged, the projected closing balances are 140 on Tuesday, 20 on Wednesday and −60 on Thursday. The minimum is breached on Tuesday. Thursday's negative planning balance means 60 pieces of unmet demand, not physical negative stock. Friday's receipt cannot prevent that earlier shortage. Planning must also check the other materials and capacity before promising a build date.

Why adding a delivery can still fail

The supplier proposes an additional 300 pieces on Tuesday at 09:00, leaving the existing 400 due on Friday. That raises Tuesday's usable stock to 300 + 300 = 600. After Tuesday, Wednesday and Thursday consumption, usable stock would close at 440, 320 and 240.

But Friday's 400-piece receipt would raise usable stock to 240 + 400 = 640 before Friday consumption. That exceeds the agreed maximum by 40. Friday's closing balance of 540 would hide the breach if the team checked only day-end balances.

Hold that proposal for a revised plan. Do not quietly change the ceiling or treat a later consumption requirement as permission to exceed it.

Reschedule the existing receipt instead

One possible recovery is to bring 300 of the existing 400 pieces forward to Tuesday, leaving 100 for Friday. The total receipt obligation stays 300 + 100 = 400; there is no additional order for 300.

Under the stated assumptions, the plan stays at or above the closing floor of 200 and never exceeds the usable-stock ceiling of 600. These are projected balances, not verified receipts or a guarantee against changed demand.

The supplier must first confirm that the split is feasible, including transport and the time needed for receiving and quality release. The responsible buyer follows the company's approval route for changing the acknowledged schedule and any extra cost. If Tuesday release is not feasible, this recovery is not approved merely because its arithmetic works.

When authorized, amend the same existing commitment and link the two delivery quantities to it. Remove the superseded Friday-400 expectation from the current plan while retaining its history. Leaving Friday-400 in place alongside Tuesday-300 and Friday-100 would count 800 pieces instead of 400. Use purchase order tracking to follow the revised commitments through actual receipt and release.

Delegate the routine and keep the exception visible

Give the supplier a dated stock/demand view and agreed authority for routine replenishment. Keep a named buyer responsible for stale data, new quality holds, demand changes, missed receipts and requests outside those limits. Recalculate when one of these changes occurs; do not wait for a weekly review when the next requirement is exposed.

For this exception, the record should contain the old and revised receipt schedule, the reason for rejecting the additional delivery, the supplier's confirmation, required approvals and the later receipt/release evidence. An approved split closes the schedule decision. It does not prove Tuesday's material arrived.

Cartograph's linked records and Inbox & Tasks can keep the affected order, owner, communications and approval history together. Scout Agent's supplier follow-up depends on the task role and permissions you set. People retain the replenishment decision, cost approval and physical/quality verification described here; this example does not assume an automatic VMI ordering engine.

Agree the criteria for expanding, revising or stopping the pilot before it starts. Before expanding a pilot, compare the same items and definitions over enough replenishment cycles to observe normal variability. Review limit breaches and actual shortages separately, together with stock levels, expedites and administration on both sides. Include setup and data-maintenance effort. A lower average stock figure alone does not show that delegation succeeded. The wider relationship review belongs in vendor management.

Questions teams ask

Does vendor managed inventory mean the supplier owns the stock?

No. Replenishment responsibility and ownership are separate terms to agree. VMI can operate with or without consignment; define ownership, payment and responsibility for obsolete or damaged stock explicitly.

Should a VMI minimum be the reorder point?

Only if that is the agreed rule. An order trigger and a mandatory stock floor have different purposes. Specify the stock basis, timing and replenishment lead time before using the number.

Why can a delivery breach the maximum if closing stock is below it?

Receipts can create a peak before consumption. In the example, 240 plus a 400-piece Friday receipt makes 640; consuming 100 later leaves 540 but does not erase the earlier breach of the 600-piece ceiling.

What happens when the supplier cannot meet the proposed split?

Keep the exception open. Recheck feasible dates, usable quantities and the production exposure with the responsible people, then obtain approval for a revised recovery. Do not record a proposed arrival as stock or add a duplicate order to conceal the shortage.