1. Introduction

Vendor Managed Inventory popularly known as VMI is gaining great momentum in retail business processes. In this era of tough competition retailers are implementing every supply chain optimization process that will reduce their costs, reduce inventory levels and increase profits. Efficient supply chain management requires the rapid and accurate transfer of information throughout a supply system. Vendor Managed Inventory (VMI) is designed to facilitate that transfer and to provide major cost saving benefits to both suppliers and retailers customers. Vendor Managed Inventory is a continuous replenishment program that uses the exchange of information between the retailer and the supplier to allow the supplier to manage and replenish merchandise at the store or warehouse level. In this program, the retailer supplies the vendor with the information necessary to maintain just enough merchandise to meet customer demand. This enable the supplier to better project and anticipate the amount of product it needs to produce or supply.

2. Definition and Concept

Vendor managed inventory process can be defined as “A mechanism where the supplier creates the purchase orders based on the demand information exchanged by the retailer/customer”. To say this in simple terms, VMI is a backward replenishment model where the supplier does the demand creation and demand fulfillment. In this model, instead of the customer managing his inventory and deciding how much to fulfill and when, the supplier does.

The VMI concept provides improved visibility across the supply-chain pipeline that helps manufacturers, suppliers and retailers improve production planning, reduce inventory, improve inventory turnover and improve stock availability. With information available at a more detailed level, it allows the manufacturer to be more customer-specific in its planning. The