With a vendor managed inventory (VMI) program, the supplier manages the inventory on behalf of customers. VMI programs have resulted some of the biggest successes among companies in the all Industries. This form of demand-driven supply chain has become more popular in the wake of these successes. At Field, we are your source for VMI programs that produce a much more efficient inventory management process for suppliers and customers.
Traditional Purchasing and Stocking Methods
Traditional ways of purchasing and stocking are based on predictable sales and forecasted inventory. There is significant risk to this model – the purchaser may but too much or too little at any one time. If the inventory is low, lost sales may occur if the supplier is unable to meet the expected demand. However, if excess inventory is present, money is tied up resulting in cash flow issues at the warehouse. A VMI program solves these issues.
The goal with VMI is to have the customer only purchase what they are going to use and move out the door. This system requires close coordination between supplier and customer. The technology involved maintains continual contact with the customer and supplier, enabling the customer to purchases in small batch orders and avoid the need for emergency purchases. VMI programs make all the necessary data available to each party, resulting in more accurate demand and inventory forecasts.
VMI improves the supply chain performance by allowing suppliers to recommend purchase orders for multiple distributors. VMI also helps users achieve greater order accuracy and less required reworking due to configurable settings and automated data flows. Addition benefits afforded by VMI include higher in-stock percentages, faster inventory runs, more sales, and protection against changes in demand at the end of the supply change which result in fluctuations in inventory throughout the chain – often referred to as the supply chain bullwhip effect.
Benefits of VMI Programs
Both parties – supplier and customer – benefit from VMI programs. Some of these benefits include:
- Smaller purchase orders resulting in reduced inventory costs
- Greater confidence in the availability of parts when needed
- Decreased administrative costs
- Reduced complexity
- Increased inventory turnover rate
- More data insights
- Closer communication between supplier and customer
- Increased stability of the supply chain