What do I need to know about Vendor Managed Inventory?

Written By: Erin Billeb 

Simply put, Vendor Managed Inventory (VMI) is a supply chain model where the end-user (customer) and the supplier work together to develop min/max levels on defined products whereas the vendor takes full responsibility for maintaining an agreed inventory level of those products in the end-user’s facility.  It also allows for the nurturing of the mutually beneficial partnership between the companies. The two main goals of a VMI Program are to reduce costs and increase efficiencies within your organization. 

 

What are the benefits of VMI?

Understandably, there may be some reservations about VMI as it gives vendors control. However, if lines of communication are open and the program is set up properly those reservations are quickly alleviated. 

 

Reducing Inventory Costs

A good vendor will stock only the products needed, which eliminates wastage and other costs. When a vendor accurately plans inventory, it reduces the cost of storing excess products and reduces or eliminates products you may no longer use or need.  Not having the right products in stock can be a big problem for your organization. Vendors can eliminate stock shortages and delivery costs for expedited orders.

 

Defer Responsibility

Supply Chain Supervisors have a huge responsibility in day-to-day activities within an organization to make sure products are in stock on time. Typically, that entails keeping track of inventory within the plant, shop or tool cribs.  When VMI is instituted, that responsibility then defers to the vendor.  This will allow the Supply Chain Supervisor to focus their attention elsewhere, often to more pressing issues, reducing their workload. 

This is what is referred to as a “Non-Value Adding Factor.” A Non-Value Adding Factors is a task that takes up your time such as recording, filing, counting, checking, inspecting, or in this case- inventorying and ordering product.  When you entrust a vendor to provide you with VMI, you and your company will improve efficiencies and ultimately save money adding it directly to the bottom line.

 

Do you think your Company could benefit from Vendor Managed Inventory?  Contact us today!

 

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