Vendor Managed Inventory (VMI): Definition & Advantages

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vendor managed inventory

Your business is nothing more than a Sea Anemone! What’s? Is that term new for you? Well, a Sea Anemone is a creature that attaches itself to the crab shells and provides protection to the newly made friend. In return, Crab offers a piggyback ride to Anemone. You can call this kind of relationship a symbiotic relationship. Vendor Managed Inventory is just the same.

Vendor managed inventory is a common ground where buyer and seller seek to take risks in order to pursue high rewards. If the buyer’s and sellers’ collaboration is done correctly, it is a win-win situation for both.

What Is Vendor Managed Inventory?

Vendor managed inventory is one of the best inventory management practices that help the vendor or manufacturers manage, maintain, and optimize their inventory. In simple terms, you can even call it a supply chain agreement.

If we try to understand the whole process, it is an inventory management system that replaces the inventory with the same product for the buyer or retailer without them initiating a purchase order.

Here, the buyer or retailer shares the inventory data with a vendor, and the vendor decides the size and the frequency of the products.

However, have you ever imagined why on earth a vendor or a supplier goes to the extent of managing an inventory that is out of their control? Well, I have something for you that will help you know the reason why.

How A Vendor Managed Inventory Works?

The interesting fact about the vendor managed inventory is that these kinds of inventories are owned by the vendors but are placed on buyers’ premises. Vendor managed inventory is consignment inventory, where the inventory is asked to be taken care of by the third-party members while still maintaining ownership.

Here is how a vendor managed inventory works.

Buyers & Seller Collaborations

The process starts with a set number of goals between a vendor and a buyer. Both decide on a particular metric that defines their success in their relationship. The success of a true relationship will depend on the followings:

Apart from this insightful data, the vendor will also consider whether the buyer pays the agreed amount at the end of the deal.

Located In Buyer’s Premise

Once the vendors prepare the inventory, the vendor managed inventory is sent to the buyers’ locations. 

Monitoring

The sales start to kick off. The vendors monitor all the sales. The vendors also keep track of the inventory level to ensure there are enough products for sale.

Reordering

When the vendor feels that the stocks in the inventory are about to finish, vendors make an order to replenish the stocks. 

Refilling Of Inventory

Refilling of the inventory is done with the help of a planner and vendor’s VMI specialist. They calculate the time when the inventory will need orders and reorder stocks accordingly.

Advantages Of Vendor Managed Inventory

Vendor managed inventory is helping the business to streamline the inventory management procedures and boost financial performance. With the help of vendor managed inventory, vendors maintain a close relationship with their customers. 

Here are the advantages that VMI offers to both buyers and its customers.

1. Improved Alignment Of Inventories

In the inventory management system’s initial days, ordering and replenishing the stocks was a time-consuming process. You first had to calculate the lower limit of the stocks and then had to make an order. The order also takes to get to you.

However, with the vendor managed inventory, the vendors constantly monitor your inventory. They have real-time information about your inventory stocks. Hence, even before you get to order for restocking, the replenishment of stocks is already taken care of by the vendors.

2. Streamlined Processes

We all know that vendor managed inventory is controlled by the supplier; hence, it helps the supplier boost its efficiency in replenishing the inventory stocks. The ordering process is directly dependent on accurate and up-to-date data. This practice allows the buyers to get the product whenever they need it.

VMI streamline the inventory management process in the following ways.

  • Reducing the frequency of making last minutes orders.
  • Reducing the overall order of numbers.
  • Reducing the rate return due to product replacements.

3. Improved Data Insight

If you have a commerce business, then you certainly know the pain of maintaining the inventories. The inventory management process is a daunting task. You have to get through several data and numbers to ensure the order details. However, with the vendor managed inventory, you enjoy benefits beyond the walls of the warehouse.

For instance, a better understanding of sales demand helps the managers improve performances and develop strong relationships with the customers. In fact, with the VMI, a customer is sharing more data that gives a productive insight into customers’ behavior.

4. Closer Collaboration With Customers

Vendor managed inventory can only achieve efficiency if it has much-needed collaboration from the customers. The suppliers who integrate the VMI in their business get a productive insight into what their customers are expecting from them.

With vendor-managed inventory, you get real-time data about the inventories, which helps you offer your products and services on time. This practice helps the business gain significant market competitiveness advantages.

5. Improved Sales Figure

Now that businesses have started using vendor managed inventory, they have real-time data about their customers. Hence, the company is able to get them on-time delivery faster than their competitors. This directly boosts the sales figures.

By increasing greater transparency and communication, the supplier is able to react better to the customers’ demands and future plans. This ultimately helps the customers and suppliers alike in more efficient and predictable ways.

Conclusion

With the help of VMI, you will be able to access some of the best Inventory professionally managed. It protects the customers from the un-optimized inventory display that takes away all your shopping excitement.

In addition to an optimized shopping experience, buyers have found a way to get hold of a professionally built inventory management system that will help them to boost their sales figures.

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