The Advantages and Disadvantages of Vendor Managed Inventory

Vendor Managed Inventory, or VMI, is inventory that is managed by the supplier of that inventory – also known as the ‘vendor’. Under VMI, the vendor keeps track of when your inventory needs to be replenished and how much of a certain product you need.

This system may sound strange. But in reality, VMI is practiced in many different industries. Sales reps frequently visit retail stores and determine how much inventory is required based on the amount of product still on the shelf. At a restaurant, you may have a “bread guy” show up every day to restock your buns, breads, and pastries.1

Meanwhile, offices often let vendors manage certain inventories – like cleaning/maintenance supplies, office supplies, and shipping packages.

What are the advantages to using VMI? What are the downsides? In this article, I’m going to explain the pros and cons of VMI and help you decide if it’s the right choice for your business.

The advantages of VMI

The advantages of VMI vary widely from business to business. In general, businesses can enjoy the following benefits by switching to VMI:

-A more efficient inventory management system: Few businesses are really good at inventory management. Outsourcing one part of inventory management to individual vendors can often be an effective way to avoid inventory problems.

-More flexible to customer demands: If your customers seem to have weird ordering habits with little logic behind them, then VMI can help you handle “lumpy” demand cycles.

-Reduce lost sales due to stock outs: Anytime a business is out of stock of a certain item, they may be losing money on missed sales of that item. VMI helps you avoid these situations and, in turn, can increase business profits.

-Manage complex inventory: If your business requires nuts, bolts, washers, and other varied inventory components, then it may be time-consuming and difficult to track all of these products. VMI puts that hassle into the hands of the vendor – which is good, because they may be more familiar with the products than you are.

-Help the vendor supply your business more efficiently: One of the hidden benefits of VMI is that it gives the vendor access to valuable details it may not know about your business. If your vendor is having trouble keeping up with the demand of your business or the ebbs and flows of customers, then VMI can provide them with greater insight into your inventory demands. Since the vendor also has more control over the shipping schedule, the vendor will work to make that system more efficient.

The downsides of VMI

VMI isn’t a perfect system. Vendors vary widely in quality, and some vendors just aren’t good at managing your inventory needs. You may find that a vendor more efficiently manages your inventory under VMI, or you may find you prefer an alternative system.2

One of the key things to know about VMI is that businesses need to set limits and controls on supplied quantities, including minimum and maximum quantities.

At the same time, businesses need to make sure these limits aren’t too restrictive, otherwise they’ll impede the vendor’s ability to accurately meet demand.

This becomes particularly important when you’re setting fill-rate requirements. You don’t want to require 99% fill rates without an increase in inventory levels if you were only getting 95% fill rates when you managed the inventory.

Is VMI the right choice for your business? Consider the above rules to decide if VMI is the best option for you.

Let Ram Products optimize your inventory management

Ram Products offers comprehensive VMI services. When it comes to maintenance, repair, and operations parts, we understand the industry from top to bottom. Our Territory Managers are inventory management specialists and work hard to ensure your shop, vehicle, warehouse, or worksite always has the materials you need to have an uninterrupted work day.

Contact Ram Products today for more information about our vendor managed inventory services. We offer thousands of high-quality MRO parts to meet the needs of virtually any business. With the help of our certified MRO specialists, Ram Products VMI can significantly improve the efficiency of your business.

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