Vendor managed inventoryVendor managed inventory is an inventory management method according to which the supplier usually manages the inventory of their customer or subcontractor. Sometimes, the supplier manages the supply planning as well. Alternatively, the customer manages the inventory but the supplier is responsible for supply planning. Inventory management or inventory planning can also be subcontracted to a logistics service provider (LSP) For more information, refer to Logistic service providers (LSP) - packaging item registration. The supplier or the customer own the inventory delivered by the supplier. Often, the ownership of the inventory changes from the supplier to the customer when the customer consumes the inventory, but other ownership transfer moments occur, which are laid down by contract. Vendor managed inventory reduces internal costs associated with planning and procuring materials, and allows the vendor to better manage their inventory through higher visibility to the supply chain. VMI scenarios Though perfectly adjustable to all types of industries, LN 's VMI solution focuses on the supply chain of the electronics industry. In practice, you can distinguish numerous scenarios, all labeled VMI, in which the supplier's role goes beyond mere selling and delivering goods to the customer. For more information, refer to Overview of VMI business scenarios Logistic service providers (LSP) - packaging item registration. Parties involved In most VMI scenarios, you can distinguish the following parties:
The supplier supplies components to the contract manufacturer. The contract manufacturer uses the components to produce items for the customer. Therefore, the contract manufacturer plays two roles: the customer of the (component) supplier, and the supplier of the (item) customer. In LN, the flow between the component supplier and the contract manufacturer, and the flow between the contract manufacturer and the end item customer is defined as a supplier - customer relation. The contract manufacturer is defined as customer of the component supplier and as supplier of the end item customer. Some scenarios involve yet another party, the logistics service provider or LSP. The LSP performs various activities related to warehouse management. Roles All of these scenarios revolve around the following questions:
In LN, you must define the responsibilities of your organization, suppliers and other business partners. The contracts that are defined by item, business partner, and warehouse include data that is relevant to these responsibilities. To set up VMI functionality, refer to: In a full VMI scenario, for example, the supplier is responsible for supply planning and warehouse management. Supply planning is based on the customer's outstanding sales orders and forecasted demand. For further information about LN functionality that supports supply planning by the supplier, refer to the User's Guide for Supply Planning by Supplier, (U9482A US). The supplier is the owner of the goods until the customer consumes them. At the moment of consumption, the customer becomes the owner and payment is due. Typically, the customer uses a self-billing process to make aggregated payments at fixed intervals, such as once a month. The supplier uses sales orders or sales schedules to sell their goods to the customer, which correspond to the customer's purchase orders or purchase schedules. Example The supplier knows their customer's requirements and plans to supply 1000 items X once a week. The supplier delivers item X at warehouse A, which is located at the customer's, but managed by the supplier. The customer performs a call-off for the issue of item X from warehouse A at regular intervals; the supplier then outbounds the goods and brings them to the customer's production plant. This is the moment the customer becomes the owner of the goods and payment is due. VMI warehouse In the previous example, warehouse A is the VMI warehouse. In the VMI scenarios that LN supports, the VMI warehouse is defined in the customer's ERP system and the supplier's ERP system. For the party responsible for warehouse management, the VMI warehouse is defined as a regular warehouse that supports full warehouse functionality. For the party not responsible for warehouse management, the VMI warehouse is defined as an administrative warehouse. Note Administrative warehouse is not one of the warehouse types that you can define in LN. To define a warehouse as an administrative warehouse, in the Warehouses (whwmd2500m000) session, clear the Inventory Management check box. Therefore, in the previous example, warehouse A is modeled as a regular warehouse in the supplier's ERP system. In the customer's ERP system, warehouse A is modeled as an administrative warehouse. Because the VMI warehouse and the administrative warehouse reside in separate systems managed by different parties, they are not synchronized. For more information, refer to VMI warehouse settings. Inventory ownership In non-VMI supply chains, a customer becomes the owner of the goods they have purchased when the customer receives them in their warehouse. In various VMI scenarios, the supplier remains the owner of the goods after delivery in the VMI warehouse until the customer uses the goods. The moment at which the ownership of the goods changes from the supplier to the customer is laid down in the contract drawn up between the supplier and the customer. In the Terms and Conditions module of the Common package, you can define ownership change rules. For more information, refer to Inventory ownership in Warehouse Management and Overview of terms and conditions.
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