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Potential Pitfalls of Vendor Managed Inventory

Although VMI has many benefits, it also has its potential pitfalls. Here are the common ones and how to avoid them:

EDI problems:

Extensive EDI testing should be done to validate the data being sent. Is the distributor sending all the data that should be sent? Is each field populated with the correct data?


Make sure that all employees involved in the process fully understand and accept this new way of doing business. It's not enough to just sell the concept to senior management, all employees who are involved must be willing participants.


Anything that adds or takes away from the normal ordering pattern must be properly communicated to the manufacturer.

Customer Base:

Any large customers, either gained or lost, must be communicated to the manufacturer. The distributor must guide the manufacturer on how this will affect sales.

Over/Obsolete Stock:

An agreement must exist between the manufacturer and the distributor on what to do if an overstock does occur (or in the case of an ordering error). Also, both parties must agree on how to handle obsolete stock.


Both parties involved must understand that this is a learning process. Errors will occur. You will probably not have a perfect process in place day 1.

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