Vendor-managed inventory (VMI) is a process that is handled by the vendor. In such cases it is the vendor who takes care of certain inventory and ensures the quantities and the time of their supply. In simpler terms it is akin to how small grocery shops get their orders filled every day by various vendors such as the dairy supplier or the vegetable guy or the baker. If they know what your sale of milk is every day they can replenish your stock to help you fulfill your orders. VMI for large corporations simply takes on a bigger form and operates on much larger scales.
Types of VMI
VMI can take many forms. There is no fixed process for it. It varies for businesses as per their needs and operations. Vendors can come to buyer’s place of business to take stock of the inventory and replenish the required quantity there and then or at a later date. At times buyers do the inventory and place their orders, which are then filled through shipment. In current times most big businesses give their vendors access to their inventory so that they can review it regularly and fill the orders.
Benefits of VMI
VMI offers many advantages to businesses. This is especially true for buyers with poor inventory management. This affects their business adversely leading to losses, which can be huge depending on the nature of the business.
VMI helps businesses run an effective inventory system. If businesses are unable to handle the work, the vendor takes the responsibility of it and keeps their stock current for their needs.
VMI helps reduce waste. Businesses with poor inventory management order either too much or too less of a product. This can translate into big losses and huge headache later on. With VMI businesses get the assurance of just the right quantity of products.
The bottom line
VMI offers many benefits to businesses. But there are downsides to it also. If the vendor doesn’t do a good job of your inventory management it could mean losses for you. It is also not easy for some people to give full control of their inventory to an outsider. At times cost of VMI could be more than you can afford.
But these are easily remedied if businesses put effective terms in place from the very start. It requires a balancing act between just the right freedom to vendors and necessary restrictions for your business safety.