Improve Accuracy & Efficiency in VMI with EDI

Week #6 of IDEA’s EDI Masterclass: Your Ultimate Guide to Streamlining Business Processes with Electronic Data Interchange

By Tom Guzik, Director, Digital Integration Services, IDEA

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In Vendor Managed Inventory (VMI), manufacturers (vendors) are responsible for managing and replenishing inventory levels at their distributors’ locations. By leveraging Electronic Data Interchange (EDI), VMI automates the inventory management and order fulfillment processes, enhancing efficiency and reducing costs. Learn the EDI transaction sets that power VMI and how these systems work together to benefit both manufacturers and distributors.

What is Vendor Managed Inventory (VMI)?

In a typical VMI setup, the vendor monitors inventory levels and sales data to make informed decisions about inventory replenishment. This approach is particularly beneficial in industries with high volumes of items and rapid inventory turnover, such as the electrical channel.

How EDI Powers VMI

EDI enables seamless communication between manufacturers and distributors. By using EDI to exchange key documents, VMI systems can operate more efficiently, providing accurate and timely inventory management.

These four documents are the backbone of the EDI-VMI automation.

1. EDI Product Activity Data (852)

Crucial for providing visibility into item activity, this document communicates inventory levels, sales data, and product movement information from distributors to manufacturers. The EDI 852 enhances accuracy and efficiency of inventory replenishment processes by:

  • Tracking Real-Time Sales Data: By receiving historical and weekly sales movement data, manufacturers can develop accurate replenishment plans.
  • Optimizing Inventory Levels: The data helps manufacturers maintain appropriate stock levels, balancing inventory costs while avoiding stockouts and backorders.

2. EDI Purchase Order Acknowledgement (855)

This electronic update for the distributor’s business system confirms the receipt and processing of VMI-generated purchase orders and helps to:

  • Reduce manual effort: The EDI 855 automatically updates the distributor’s system with new purchase orders generated by the VMI engine, eliminating manual data entry.
  • Enhance Accuracy: Automating this process reduces errors and ensures that replenishment orders are accurately reflected in the distributor’s system.


3. EDI Advance Ship Notice (856)

This document provides detailed information about shipment dates and quantities, supporting accurate tracking and processing with key functions that include:

  • Shipment Confirmation: The EDI 856 updates the VMI system with ship dates and quantities, allowing distributors to anticipate incoming shipments.
  • Efficient Receiving: By triggering the receipt of inbound orders and closing out open purchase orders, the EDI 856 reduces inventory management delays and errors.


4. EDI Order Status Report (870)

By updating distributors with planned ship or delivery dates, the EDI 870 enables more efficient inventory management with:

  • Improved Communication: The EDI 870 pairs with the EDI 856 to provide timely updates on any changes to ship dates.
  • Improved Communication: The EDI 870 pairs with the EDI 856 to provide timely updates on any changes to ship dates.


Benefits of EDI-Powered VMI

For Distributors:

  • Effortless Inventory Management: Coupled with EDI automation, VMI eliminates the need for manual inventory reviews and reordering processes. Distributors can focus on value-added activities such as price negotiation rather than routine inventory management tasks.
  • Reduced Stockouts and Inventory Costs: By automating inventory replenishment, EDI-powered VMI helps reduce excessive inventory carrying costs, leading to more efficient use of warehouse space and capital.
  • Reduced Stockouts and Inventory Costs: By automating inventory replenishment, EDI-powered VMI helps reduce excessive inventory carrying costs, leading to more efficient use of warehouse space and capital.

For Manufacturers:

  • Real-Time Response to Real Demand: Automated VMI allows manufacturers to respond swiftly to changes in demand while maintaining lower inventory levels.
  • Efficient Production Planning: By providing accurate demand usage and inventory turnover data, EDI-powered VMI enables manufacturers to better align production with market demand.
  • Reduced Costs: With more efficient inventory level management, manufacturers can avoid costly rush orders and unscheduled production runs.


Summary

By utilizing key EDI documents such as the EDI 852, EDI 855, EDI 856, and EDI 870 within VMI systems, distributors and manufacturers can automate and optimize inventory management to enhance efficiency, accuracy, and collaboration.

If you’re interested in leveraging Electronic Data Interchange for VMI, please contact your IDEA Exchange Account Executive or Ilene Bromberg at 703-562-4689 or at ibromberg@idea4industry.com. We look forward to helping you unlock the full potential of EDI for your business.

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