Improve Supply Chain
Efficiency with
Vendor-Managed
Inventory

  • by Bruce Rishel, CSCP, PMP, Partner, Venetia Systems (July 2010)
  • April 15, 2008
Gain a critical overview of how vendor-managed inventory (VMI) reduces inventory levels and holding costs, enhances supplier visibility, and shrinks demand fluctuations. Learn how to set up master data and configure your SAP system to support VMI.
Key Concept
In a traditional retailer-vendor relationship, the retailer stores the inventory and maintains inventory levels, ordering more stock as needed from the vendor. In a vendor-managed inventory (VMI) arrangement, the vendor maintains the inventory levels and sends the retailer more stock when the vendor sees the levels are becoming low.

For most retailers, supply chain efficiency is crucial to lowering costs, maintaining customer satisfaction, and improving inventory levels. Vendor-managed inventory (VMI) agreements between retailers and vendors can help you address supply chain inefficiencies because they allow retailers to have better control over changing market conditions. The vendor produces smaller, predictable batches, which makes the inventory more constant.

Using a VMI scenario between a vendor and a retailer, in which the retailer initiates the VMI agreement with the vendor, we’ll show you the minimal master data setup and configuration settings retailers need to configure VMI in their SAP ERP systems. Then we’ll discuss how to schedule material requirements planning (MRP) and offer some tips for executing VMI. This article applies to mySAP ERP 2004 and SAP ERP 6.0, although the functionality is similar in R/3.

Bruce Rishel

Bruce Rishel is a partner with Venetia Systems. He has earned the APICS Certified Supply Chain Professional (CSCP) certification as well as the Project Management Institute’s Project Management Professional (PMP) designation. Since 1998, Bruce has served his clients in a number of roles including both functional and technical leads and as a project manager. Bruce helps companies develop and improve logistics and supply chain processes and specializes in implementing the LE module, including WM and TM. Bruce has considerable experience integrating external logistics systems with SAP and is an expert in the SAP XSI solution facilitating SAP communication with third-party transportation providers. In addition to his client experience, Bruce is a frequent contributor to SCM Expert and speaker at SAP’s SAPPHIRE conference. He continues to work hands on, helping his clients realize their potential.

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