Many bigger businesses depend on vendors and suppliers to manage their warehouses and anticipate their restocking needs. This is an arrangement known as “vendor managed inventory,” or VMI. Whether you’re a retailer or supplier, a VMI system is a viable way to streamline daily operations in your business.
The goal of VMI is to ultimately be a mutually beneficial system for both retailers and suppliers. The same core elements of warehouse management are still present, but the direct responsibility of this undertaking shifts to the vendor. Below are some of the main benefits to both parties.
As a retailer, it can be cost prohibitive to maintain all of your own inventory needs efficiently. You may be limited by physical storage space, lack of revenue, or may find yourself in a growth phase where you are not yet prepared to handle the full suite of logistics. Having to go through the process of creating, submitting, and reconciling purchase orders may waste valuable time and cause delays in fulfillment — or simply tax limited resources. With that in mind, the VMI supply chain system can help retailers:
As the manufacturer, vendor, supplier, or distributor, you may be reluctant to take on the responsibility of inventory planning and management for your customers. While VMI may take some effort to get started, the method can provide certain benefits to suppliers, such as:
Keep in mind that for any of these benefits to take place, the retailers and suppliers have to work together to drive the success of the VMI system.
Support of the VMI process requires regular review and calculation of order quantities based on shared data, including special information like sales and promotions. For this to be successful, and to avoid backorders and missed sales, retailers must be diligent in ensuring clear and open lines of communication with vendors. Vendors must also set clear expectations from the beginning of the relationship. Incorporating a warehouse management platform that other applications (like accounting software or an e-commerce platform) can integrate with seamlessly may help facilitate this information exchange and allow vendors and retailers/buyers to work together more effectively.
The Supply Chain Resource Cooperative of NC State University outlines three essential steps to making a VMI supply chain work:
Communication is a crucial component to a successful VMI system. Any changes in project management, supply chain logistics, or customer needs must be communicated from retailer to supplier as soon as possible to avoid backorders, extra inventory, or unhappy customers.
Likewise, suppliers must communicate with their retailers often as well. If demand surges and their resources are stretched thin, they should let their customers know that they will have less flexibility for a period of time. Any of these potential bumps in the road can be prevented with clear and open communication, as well as effective planning and preparedness.