Great video, here is an explanation I offer my supply chain students: Subject: Read: VMI or Consignment? I recently had a student ask me this question - Would you recommend using Vendor Managed Inventory (VMI) or Consignment Inventory (CI)? I feel like VMI means that you have to regulate the Suppliers more than Consignment would. Consignment allows you to have your inventory costs in the hands of the supplier so the inventory cost is lower for you. In other words, Consignment means we will buy the stuff from suppliers, but we will not pay the supplier until we actually use it. However, with consignment, you still have to manage the inventory even though you will not pay the supplier until you use it. VMI means you actually pay someone to come in and manage your inventory for you. My last internship we used Consignment, I saw an article on VMI and it made me curious to see the positives of VMI vs CI. Sime's thoughts - Companies will often use a VMI supplier for MRO kind of stuff in their manufacturing facilities. Remember, MRO stands for Maintenance, Repair, and Operating items (that is a mid-term exam question for sure). Basically, it is all the indirect material and purchases used to support manufacturing (i.e., tools, gloves, hammers, oil, grease, brooms, cutters, drills, etc.). So. MRO is one type of indirect spend. Companies are so busy managing their direct material purchases that they do not want to waste their scarce resources on managing MRO and indirect stuff. So, VMI suppliers will manage it for you. VMI suppliers will literally come into your company and check your inventory and make sure you never run out of stuff. Yes, you do pay a premium for this but it also lets you focus on more value added activities such as managing your direct material and building products. Also, if you choose the right VMI supplier that has a core competency in this stuff, they will likely do it better, faster, and cheaper than you could yourself. Usually with VMI suppliers, you pay them as soon as they replenish your inventory (who works for free, right?). So, you have to pay them as soon as they come in and restock the material. You can have them come in once a day, once a week, once a month, etc. You will have to use data analytics (CIS 2640 stuff) to figure out what makes the most economic sense. Now, the student above asked about using Consignment instead of VMI. Consignment means we will buy the stuff from suppliers, but we will not pay the supplier until we actually use it. So, if we have an inventory of something in our factory, we are not going to pay the supplier for it until we actually use it. So, if it sits there for 3 weeks, the supplier will not get a check for 3 weeks. It sounds kind of greedy but it basically means companies can have an inventory of stuff, but without the costs. Sounds like a great deal, right? It is, but you need lots of leverage to pull this off and most manufacturing companies get this leverage from suppliers for indirect and MRO stuff (it’s that competitive out there). Here is the answer to my student’s question - Why not use a VMI supplier and consignment? Tell the VMI supplier to make sure that you never run out of stuff, but then also tell them that you do not want to pay for anything until you actually use it. Personally, I think you would look like a cash flow superstar if you could negotiate such an arrangement. If the VMI suppliers knows they will be getting steady long-term business from you, then they should be willing to support such an arrangement (as long as they get paid upon consumption of the material). So, you can have both a VMI and Consignment arrangement, but you will have to use your Dr. Jim Eckert negotiation skills to pull it off. Dr. Eckert teaches MKGT 2750 every Fall and it is the best negotiation class you could ever take. If you take this class, then I will sign off on it to sub out another class. You are going into the buyer-supplier world and negotiation might end up being the most important strategic skill set that you need (along with all the other stuff we preach, it never ends, but $$$$$$). Thank you. Sime Dr. Sime (Sheema) Curkovic, Ph.D., Valluzzo & Lee Honors College Faculty Fellow Professor, Operations/Supply Chain Management Western Michigan University, Haworth College of Business Schneider Hall Room 3246, Kalamazoo, MI 49008-5429 Tel.: 269.387.5413; E-Mail: sime.curkovic@wmich.edu "Better, faster, cheaper"; www.wmich.edu/supplychain "WMU Integrated Supply Management (ISM)...Nation's best undergraduate SCM program (Gartner 2014); 2nd in SCM technology (SoftwareAdvice 2015); 2nd in top global SCM talent (SCM World 2017) Vitae: www.wmich.edu/sites/default/files/curriculum-vitae/CurkovicVitae2017_0.pdf Sample Lectures & Should You Major in Supply Chain Management? wmich.edu/supplychain/academics/lectures
Hi Sime , im new to VMI. i have a question?Supplier can able to view customer inventory and find out that there is a shortage of product. now my question is whether customer will create the PO or there is some other option used in VMI. how the process works. can you please elaborate me . Thanks
Mr. Ian thank you very much for your videos and articles, I run into them and I find them very interesting, I am working in my master's thesis so this subject is very important...
How is it going..I am a master's student in operations research. I need data in a master's thesis on the inventory managed by the seller. How do I get data and from where can I take them, please help me 😢
I have an interview tomorrow for a VMI position. Thank you for this video.
Great video, here is an explanation I offer my supply chain students:
Subject: Read: VMI or Consignment?
I recently had a student ask me this question -
Would you recommend using Vendor Managed Inventory (VMI) or Consignment Inventory (CI)? I feel like VMI means that you have to regulate the Suppliers more than Consignment would. Consignment allows you to have your inventory costs in the hands of the supplier so the inventory cost is lower for you. In other words, Consignment means we will buy the stuff from suppliers, but we will not pay the supplier until we actually use it. However, with consignment, you still have to manage the inventory even though you will not pay the supplier until you use it. VMI means you actually pay someone to come in and manage your inventory for you. My last internship we used Consignment, I saw an article on VMI and it made me curious to see the positives of VMI vs CI.
Sime's thoughts -
Companies will often use a VMI supplier for MRO kind of stuff in their manufacturing facilities. Remember, MRO stands for Maintenance, Repair, and Operating items (that is a mid-term exam question for sure). Basically, it is all the indirect material and purchases used to support manufacturing (i.e., tools, gloves, hammers, oil, grease, brooms, cutters, drills, etc.). So. MRO is one type of indirect spend. Companies are so busy managing their direct material purchases that they do not want to waste their scarce resources on managing MRO and indirect stuff. So, VMI suppliers will manage it for you. VMI suppliers will literally come into your company and check your inventory and make sure you never run out of stuff. Yes, you do pay a premium for this but it also lets you focus on more value added activities such as managing your direct material and building products. Also, if you choose the right VMI supplier that has a core competency in this stuff, they will likely do it better, faster, and cheaper than you could yourself. Usually with VMI suppliers, you pay them as soon as they replenish your inventory (who works for free, right?). So, you have to pay them as soon as they come in and restock the material. You can have them come in once a day, once a week, once a month, etc. You will have to use data analytics (CIS 2640 stuff) to figure out what makes the most economic sense.
Now, the student above asked about using Consignment instead of VMI. Consignment means we will buy the stuff from suppliers, but we will not pay the supplier until we actually use it. So, if we have an inventory of something in our factory, we are not going to pay the supplier for it until we actually use it. So, if it sits there for 3 weeks, the supplier will not get a check for 3 weeks. It sounds kind of greedy but it basically means companies can have an inventory of stuff, but without the costs. Sounds like a great deal, right? It is, but you need lots of leverage to pull this off and most manufacturing companies get this leverage from suppliers for indirect and MRO stuff (it’s that competitive out there).
Here is the answer to my student’s question - Why not use a VMI supplier and consignment? Tell the VMI supplier to make sure that you never run out of stuff, but then also tell them that you do not want to pay for anything until you actually use it. Personally, I think you would look like a cash flow superstar if you could negotiate such an arrangement. If the VMI suppliers knows they will be getting steady long-term business from you, then they should be willing to support such an arrangement (as long as they get paid upon consumption of the material). So, you can have both a VMI and Consignment arrangement, but you will have to use your Dr. Jim Eckert negotiation skills to pull it off. Dr. Eckert teaches MKGT 2750 every Fall and it is the best negotiation class you could ever take. If you take this class, then I will sign off on it to sub out another class. You are going into the buyer-supplier world and negotiation might end up being the most important strategic skill set that you need (along with all the other stuff we preach, it never ends, but $$$$$$). Thank you. Sime
Dr. Sime (Sheema) Curkovic, Ph.D., Valluzzo & Lee Honors College Faculty Fellow
Professor, Operations/Supply Chain Management
Western Michigan University, Haworth College of Business
Schneider Hall Room 3246, Kalamazoo, MI 49008-5429
Tel.: 269.387.5413; E-Mail: sime.curkovic@wmich.edu
"Better, faster, cheaper"; www.wmich.edu/supplychain
"WMU Integrated Supply Management (ISM)...Nation's best undergraduate SCM program (Gartner 2014); 2nd in SCM technology (SoftwareAdvice 2015); 2nd in top global SCM talent (SCM World 2017)
Vitae: www.wmich.edu/sites/default/files/curriculum-vitae/CurkovicVitae2017_0.pdf
Sample Lectures & Should You Major in Supply Chain Management?
wmich.edu/supplychain/academics/lectures
Hi Sime , im new to VMI. i have a question?Supplier can able to view customer inventory and find out that there is a shortage of product. now my question is whether customer will create the PO or there is some other option used in VMI. how the process works. can you please elaborate me . Thanks
i'd like to thank you Mr.Ian for everything you do☺☺♥
your channel is amazing & very helpful♥
Allah will reward you as you help us♥
Mr. Ian thank you very much for your videos and articles, I run into them and I find them very interesting, I am working in my master's thesis so this subject is very important...
Great videos , can you talk on good approach for clawback on procurement ? Knowing commodities are going down
Sir, I pretty much thank you for your VMI system lesson
BIg thanks from India sir 😊
Thank you Mr Johnson!!
Cheers from Brazil!
:)
Thanks a lot!!!
How is it going..I am a master's student in operations research. I need data in a master's thesis on the inventory managed by the seller. How do I get data and from where can I take them, please help me 😢
Thank you sir, for the valuable information
Ain't no explanation like an Ian Johnson explanation
Hi Mr. Lan. I would like to know if I can find in market the sistem to vendor to can control the stock in loco. Could help me?
How will you differentiate an automated replenishment and VMI
It depends on who owns the autonamous solution and who owns the order trigger. However there is over lap in auto replinishment and VMI.
John, can you please recomend some companys name who provide VMI services
ARC proposal means
Hi sir how to discuss VMI
VMI mean ..... vijay makkal iyyakkam 🔥🔥