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Vendor managed inventory (VMI) and consignment are not synonyms. They are not even remotely similar concepts. We have no idea why they seem to be confused with one another so often, but for some reason they are.
Today we are going to do humanity (and ourselves) a favour and explain the concepts behind VMI and consignment to clear this up once and for all.
Let’s get started.
What Is Vendor Managed Inventory?Vendor managed inventory is a reasonably advanced form of stock management that has several potential benefits for all involved. In a VMI set up the supplier (the organization who provides the inventory) and the customer (the organization who needs their inventory replenished) have an almost symbiotic relationship.
Note: We have created an in-depth article on how VMI works and a few hints and tips for success with the system here. But we will give a rough overview in this article to enable us to clear up the confusion between VMI and consignment.
A VMI system takes a little bit of time and effort to set up, but once up and running it can become a highly profitable streamlined process.
Consignment:Customer have full control of the inventory for the goods until selling the goods or return to supplier. Ex. When supplier delivers Shampoos to Ladies salon, and the salon sell/Use and pay to the supplier.
VMI:Supplier have the full control of the inventory (add, change, collect…).Ex. When supplier delivers Shampoos to Ladies saloon, then keep controlling and monitoring quantities by his Merchandizer by adding more quantities of fast moving item.
1. A VMI is when your vendor is managing the supply of your inventory.
2. Whereas, a consignment relates to the ownership of the inventory.
CONSIGNMENT is the one who relates to the ownership of the inventory, while VMI is the one who managing the supply of such inventory
Consigment is completely under the custody of the CUSTOMER.
VMI - Customers Inventory under the custody and control of Vendor
In consignment the customer acts as a distributor of products only. The supplier stocks the products in the customers location and receives the payments after the products are sold. In this process the customer is purely benefitted from financial risks, while the vendor is subjected to risk because of unsold items or product demand levels.
The VMI is a collaborative strategy between the vendor and the customer, where the vendor replenishes the goods in the customers locations based on the demand levels. The vendor takes control of the inventory in the customers location. Both the vendor and the supplier share the risks unlike the consignment strategy.
VMI:Supplier have the full control of the inventory (add, change, collect…).Ex. When supplier delivers Shampoos to Ladies saloon, then keep controlling and monitoring quantities by his Merchandizer by adding more quantities of fast moving item.
Consignment:Customer have full control of the inventory for the goods until selling the goods or return to supplier. Ex. When supplier delivers Shampoos to Ladies salon, and the salon sell/Use and pay to the supplier.
