Executive Summary

The concept of Vendor-Managed Inventory (VMI) revolutionalized the retail industry by mitigating uncertainly of supply for retail stores, decreasing uncertainly of demand for manufacturers, and increasing customer satisfaction by eliminating stock-outs. The dynamics of IT asset-ownership in the IT Outsourcing (ITO) industry are strikingly similar to the consumption of the products in the retail industry.

Historically, the typical outsourcing contract required that the buyer transfer its IT assets to the supplier. Over time, the need for such transfer subsided and alternative models emerged. The Infrastructure Outsourcing (IO) industry reached a point where significant value could be derived through implementation to VMI aspects in the outsourcing deal.

On Demand and Pay-Per-Use (PPU) pricing models developed; as promoted by several hardware vendors, these models offer a way to implement VMI concepts in IO. Entry of these models into IO has the potential for significantly changing the game. VMI models sometimes can be confused with Utility Computing (UC) or leasing. Although the high-level business benefits might look similar, the models feature completely different sources of value creation.