Vendor Managed Inventory (VMI)

As a symbiotic relationship, VMI makes it less likely that a business will unintentionally become out of stock of a good and reduces inventory in the supply chain. Furthermore, vendor (supplier) representatives in a store benefit the vendor by ensuring the product is properly displayed and store staff, are familiar with the features of the product line, all the while helping to clean and organize their product lines for the store.
One of the keys to making VMI work is shared risk. Often if the inventory does not sell, the vendor (supplier) will repurchase the product from the buyer (retailer). In other cases, the product may be in the possession of the retailer but is not owned by the retailer until the sale takes place, meaning that the retailer simply houses (and assists with the sale of) the product in exchange for a predetermined commission or profit. A special form of this commission business is scan-based trading whereas VMI is usually applied but not mandatory to be used.
This is one of the successful business models used by Wal-Mart and many other retailers. Home Depot uses the technique with larger suppliers of manufactured goods. VMI helps foster a closer understanding and collaboration between the supplier and distributor or Retailer by using EDI, statistical methodologies to forecast and maintain correct inventory in the supply chain. Vendors benefit from more control of displays and more contact to impart knowledge on employees; retailers benefit from reduced risk, better store staff knowledge (which builds brand loyalty for both the vendor and the retailer), and reduced display maintenance outlays.
In today�s retail industry, it would be impossible to automate a VMI implementation � or have one even somewhat close to accurate without an EDI system. That said, hundreds of companies run very successful VMI programs using the following types of EDI services:

• In-house EDI
• Hosted EDI (SaaS, ASP, etc...)
• Service Bureau
• Hybrid portals

1. You receive a series of 852 documents from your trading partner on Sunday night. These reflect the previous week�s sales for all of that retailer�s stores.
2. Using specialty application/service or by whatever means, create your sales orders (Internal docs) from those 852�s.
3. You may be required by your TP to send 856 documents (Per store).
4. You may be required to send back 810 documents (Per store).

852 - Product Activity - sent by the Retailer

• Quantity Available (QA): Distributors Current Inventory Available
• Stock Type (QA-reference segment): "P" = Managed, "N" = Non-Managed
• Quantity on Order (QP): The Distributors Backorder with the Manufacturer
• Quantity Damaged (DG)
• Adjustment to Inventory Quantity (QT)
• Quantity Transferred (QZ)
• Calculated Reorder Point (PO)
• Quantity Out of Stock (QO): Distributors Backorder to their End Customer
• Quantity Sold (QS): Total Volume Sold since the last Transmission
• Frequency(QS): Number of Sales that makeup the Total Volume
• Quantity on Hold (HL)
• Lost Sales (LS)
• Planned Order Quantity (OQ)
• Quantity Committed (QC)
• Additional Demand Quantity (QD)
• Quantity in Transit (QI)
• Minimum Inventory Quantity (QL)
• Maximum Inventory Quantity (QM)
• Quantity Received (QR)
• Quantity Returned by Customer (QU)

850 - Purchase Order

855 - Purchase Order Acknowledgement � sent by the Supplier

856/857 - Advanced Ship Notice - sent by the Supplier

861 - Receipt Advice - Sent by the Retailer

810 - Invoice - sent by the Supplier

820 Payment/Remittance Advice - sent by the Retailer