As alluded to in the third principle of VMI, the model dictates that the vendor establishes the min/max level of inventories. It is for this reason that the supplier and customer must work so closely together on forecast and actual consumption. If the min/max is out of line with actual requirements, there will either be too much or too little inventory at the VMI facility. In the case of the former, excess inventory will take up valuable shelf space; in the latter case, line stoppages and increases in work in process will become the norm.In addition to the need for min/max levels to be aligned with actual production numbers, the accuracy of the counts at the VMI facility must be 100%. Accuracy is so important for an international model because replenishment shipments are executed based on what the vendor believes it has in inventory and the time needed to get more materials into the facility. If the inventory level is not accurate, the result will be the same as in the discussion on min/max levels. Specifically, if the inventory management system shows more product than is actually in the facility, replenishment orders will arrive late, causing lines to go down, work-in-process inventories to grow and finished goods delivery dates to be missed. On the other hand, if the system shows less than the actual amount on hand, orders will be shipped too early, creating a glut of raw materials at the VMI operation. Neither of these situations bodes well for the health of the vendor/customer relationship. It should be clear that a combination of unrealistic min/max levels and low inventory accuracy in a global production model can put a factory out of business.The importance of lead times and inventory accuracy also creates waste-related concerns in the VMI facility. Bearing in mind that an international VMI site is bonded, the operator must procure government approval to run a facility. Part of the approval process involves determining the exact amount of space the operation will require. In a domestic VMI operation, any additional space requirements are a matter of adding on to the existing building. In a bonded facility, any additions require further government approval, a process that is not known for high levels of expediency. Thus, if inventories grow due to a lack of confidence in lead times or inventory accuracy, an operator may be in the unenviable position of not having anywhere to store goods. For a lean VMI operation, underutilized or unneeded space is considered waste, and the operator must find ways to reduce the space requirement rather than expand the facilities. Once again, the enterprise-wide ramifications of inventory management seep into all aspects of an operation.
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