A standard agreement for vendor managed inventory

Purpose – The purpose of this paper is to define the standard structure of a vendor managed inventory (VMI) agreement, which can be used as a guideline for the early definition of the agreement. Design/methodology/approach – Starting from an industrial application of relevance, the information flow and the technical details, which are to be defined before the operation startup, are identified and discussed. These data are used as the key points for the definition of the basic frame of the agreement. A particular emphasis is given to the “Technical Specification” and the “Service Level Agreement” sections. Findings – It is shown that a VMI agreement should be arranged into parts dealing with the generic and legal sides of the agreement, whereas the technical aspects and the relation-specific topics should be addressed in the annexes. This increases the flexibility of the agreement in that, as the VMI relationship evolves over time, changes will affect only the annexes leaving the main body of the agreement unaltered. Practical implications – The proposed agreement has a flexible structure and can be easily adopted by the personnel involved to correctly define and implement VMI in several industrial fields. Originality/value – By approaching VMI from a practical point of view, this paper identifies the main issues that must be covered in the agreement to fit the needs of both parties and to assure benefits on both sides.