What is Vendor Managed Inventory?
Vendor-managed inventory (VMI) is a supply chain management method in which a product supplier monitors inventory levels and replenishment for their client. Making sure that the customer always has the appropriate amount of inventory on hand in VMI. The supplier is in charge of keeping an eye on inventory levels at the customer’s location, creating purchase orders as necessary, or sending products as needed. The aim of VMI is to enhance supply chain efficiency, reduce stockouts, decrease inventory carrying costs, and enhance inventory accuracy to assist retailers and distributors. Also, by allowing suppliers to take on the duty of managing inventory, freeing up resources to concentrate on other facets of their business, such as sales and marketing.
How Vendor-Μanaged Ιnventory (VMI) Works?
For e-commerce businesses, keeping up with client demand is a major challenge because customers have many rival possibilities. Customers lose faith in your company and hunt for a similar product elsewhere if you are ever even once out of stock. You may even lose that customer forever. VMI reduces the likelihood of that happening by establishing checks and balances across the process and aligning vendor and buyer interests.
Here is a quick explanation of how VMI processes:
- Monitoring inventory levels: Using various tools, such as EDI, RFID, or point-of-sale data. The supplier keeps track of the inventory levels at the customer’s location. As a result, the supplier can keep track of the customer’s inventory levels and when it needs to be replaced.
- Generating purchase orders: The supplier creates a purchase order or shipping request for the required goods once they have decided that inventory needs to be restocked. This guarantees that the customer always has the appropriate amount of goods on hand. Eliminating the need for human replenishment requests.
- Shipping and replenishment: The supplier then ships the products to the customer’s location, based on the agreed-upon delivery schedule. The supplier is responsible for ensuring that the products arrive on time and in the right quantity. So the customer can maintain optimal inventory levels.
- Deal: The terms and conditions of the VMI arrangement are set down in an agreement between the supplier and the client.
- Data Exchange: The customer provides the supplier with inventory data such as current stock levels, sales patterns, and predicted demand. Several channels, such as electronic data exchange (EDI), email, or online portals, can be used to send this information.
Advantages of VMI
In a supply chain approach known as vendor-managed inventory, the supplier is in charge of controlling the stock levels of their clients. Manufacturing businesses can benefit from this strategy in several ways. Firstly, VMI can help reduce inventory carrying costs and allow the supplier to manage inventory levels. This results in lower storage, handling, and insurance costs for the customer. Secondly, VMI can improve inventory accuracy. This entails real-time data sharing and automated replenishment, reducing the risk of stockouts or overstocking. Also, VMI requires close collaboration between suppliers and customers, which can lead to better communication and stronger relationships. Lastly, by eliminating the need for manual inventory management and enabling suppliers to proactively control inventory levels, VMI can result in more effective supply chain operations. This can result in faster order fulfillment, reduced lead times, and improve overall supply chain efficiency.
Last but not least, VMI may enhance customer service and allow lead times and ensure that customers always have the products they require on hand. Suppliers can also increase client loyalty and happiness. This is accomplished by actively managing inventory levels to ensure efficient and timely fulfillment of customer orders.