Retailer vulneravility. Having outsourced materials management to suppliers, the customer becomes more dependent on them.

Lack of standard procedures. The practicalities of the processes and procedures that underpin VMI may not be transferable from one customer to another.
Customers may ask for different tagging methods or bespoke labelling. With many industrial products there is no bar-code standard.

System maintenance. Errors creep into inventory records due to wrong counts, mislabelling, damage, loss and theft. These records need to be maintained through manual methods such as stock counts.

Six Steps to a Successful VMI System

COMMUNICATE expectations of all parties. Customers and suppliers must make the effort to sit down and discuss the goals and objectives of implementing VMI. The importance of this step cannot be overstated. Both parties' hardware and software requirements must be identified, and an understanding must be reached in terms of how both companies' systems will communicate. Then a plan for implementation must be mapped, specifically identifying each party's financial and other responsibilities.

Customer must commit to sharing PRECISE information. Suppliers must have visibility into the customer's internal sales and inventory information. Without accurate data, ability to quickly meet demand will be impaired.

Suppliers must ensure RELIABLE transmission, receipt, and use of information. To facilitate Step 2, the supplier must be able to guarantee that the customer's trusted information will be communicated, received, and utilized securely and thoroughly to meet the designated needs. Time should be spent during the planning phase discussing information precision and reliability.

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* Contributed by -
Guruprasad Pasupulety,
MBA - Batch of 2007,
Tallinn University of Technology, Estonia.