Globalisation has caused a dynamic shift in business and a streamlined supply chain is absolutely important to stay competitive. One proven strategy to achieve is through Vendor Managed Inventory (VMI). What exactly is VMI and what is its impact on regulating procurement timelines for supply chain management? Let’s dive in!
What is Vendor Managed Inventory (VMI)?
Vendor Managed Inventory (VMI) is a business model in which the supplier, not the buyer, handles the task of managing inventory levels for scm. Traditionally, buyers would track stocks and place orders as required. VMI, on the other hand, empowers the supplier to keep tabs on the buyer’s inventory and take a call about when and how much inventory must be restocked. The supplier is able to do this by tracking data about the demand from the buyer to control forecasting, stock replenishment and order fulfillment. One of the main goals of VMI is to eliminate the need for the buyer to monitor and restock their inventory.
Effective Strategies for Successful VMI
- Clear Communication: Consistent communication and transparency with all suppliers and customers is important. Set up regular meetings and updates to address any issues that may crop up and also to keep both parties informed about inventory goals.
- Data Collection and Analysis: Collect, sort and analyse accurate and reliable data to make sure inventory goals are being managed effectively. This data will prove invaluable to identify trends and make informed choices about inventory levels.
- Set Goals and Objectives: Put together a broad VMI plan to outline goals, objectives and responsibilities of all involved parties. Performance metrics must also be a part of this plan as tracking these will help to evaluate the success of the VMI program.
- Technology Integration: Seamless data sharing and inventory replenishment are two important parameters to consider when investing in technology for VMI. Look for features like real-time tracking, demand forecasting and automated restocking.
5 Ways VMI Benefits Supply Chains
- Lower Inventory Costs: As vendors manage inventory, customers get the chance to reduce inventory costs and improve cash flow for both parties. VMI is also an effective safeguard against excessive inventory.
- Improved Order Accuracy: Automated data flows and adjustable settings allows VMI users to enjoy a high level of order accuracy and reduce rework
- Protection Against the Bullwhip Effect: The bullwhip effect is when demand fluctuations increase as you move up the supply chain. VMI can streamline processes and prevent supply chains from falling prey to these fluctuations.
- Improved Inventory Turnover: VMI systems usually cause quicker inventory turns, which helps to ensure products move quickly and efficiently through the supply chain.
- Fewer Stockouts: Tracking of inventory levels and sales data allows VMI to reduce the risk of stockouts to a large extent, which means that products are readily available to meet customer demands.
Effective supply chain planning can be achieved through Vendor Managed Inventory. Simply by shifting responsibility from buyers to suppliers, VMI strategies have a positive impact on the efficiency of the supply chain, fosters collaboration between teams, and drives predictability for both parties.
