What do you understand by Vendor managed Inventory Management System?
Vendor-managed inventory (VMI) is an inventory, the board practice in which a provider or supplier of products or, generally the producer, is responsible for optimizing the inventory held by a distributor.
A VMS is an electronic programming application that permits you to deal with your organization’s whole unexpected labour force recruiting measure in one simple to-utilize arrangement.
By going about as a system for your business to oversee and secure unexpected labourers through staffing organizations, a VMS robotizes and smoothes out each progression related to the sourcing, obtaining, overseeing, and paying of transitory specialists.
A VMS will permit your organization to gather orders from directors, work with unforeseen specialist onboarding, robotize exchanges, store and gather information from each progression of your unexpected labourer recruiting measure, and examine measurements, for example, spend following, competitor data, finance, and receipt information.
Vendor-managed inventory (VMI) is a plan of action wherein the purchaser of an item gives certain data to a vendor or the provider of that item and the provider assumes full liability for keeping up concurred inventory levels of the material, generally at the purchaser’s favored area or store.
For this reason, this method is also called supplier-managed inventory, collaborative replenishment, or continuous replenishment.
Now coming to our second part of the question why is Vendor Managed Inventory popular. This is mainly because it offers a lot of benefits for both the supplier and the buyer.
Let’s look at some of the advantages of Vendor Managed Inventory system.
Advantages of Vendor Managed Inventory System
Perhaps the greatest advantage of the Vendor Managed Inventory framework is that you don’t have to accumulate a load of the items. Generally, retailers wind uploading items more than needed because of the dread of leaving the stock.
In any case, the inventory and their amounts are kept up by the provider in the Vendor Managed Inventory framework subsequently, the items are accessible as and when required and there is no compelling reason to overload them
Vendor Managed Inventory model is suitable for huge organizations like Walmart, Tesco in light of the fact that above all else, it wipes out the need to overload the items. Furthermore, since a great deal of mass purchasing is finished by enormous organizations, it gets savvy. Furthermore, maybe that is the reason we get the best arrangements on items at colossal shopping centres and retail chains!
Additionally, VMI helps in conquering the deficiencies of stocks. The vendor is consistently mindful of the inventory held by the vendor so he renews the stock when it hits a low degree of inventory. Henceforth, disposing of the additional expense caused for facilitated transporting
Seamless flow of inventory
Vendor Managed Inventory depends intensely upon measures and refreshed information on programming a smooth progression of inventory gets conceivable since the data of stock depend on every item is refreshed consequently in the framework.
This framework upholds continuous inventory the executives and thus, more precise inventory control additionally gets conceivable. The vendor just as the purchaser knows the specific measure of inventory accessible and thusly can re-request when the inventory levels go down. VMI likewise helps popular determining and subsequently, again upholds in keeping up the particular stock for everything according to their future interest.
Improves customer satisfaction and loyalty
This is by far the biggest benefit of vendor-managed inventory. Since you are never out-of-stock for any products, the customers keep coming to you each and every time. As mentioned earlier, this system helps in real-time inventory management and since you are buying the products in bulk from the vendor, you can provide heavy discounts and thereby keep your customers happy.
Challenges while practicing vendor managed inventory system
Frequent and bulk replenishment
One of the challenges in the Vendor Managed Inventory system is that the buyer must order the commodities in bulk and too frequently. This means that the business must be really big and the demand for the products must be really high in the market.
Hence, this kind of system is simply not meant for small businesses with limited orders and space for storage.
However, for large businesses, this method can be cost-effective.
As we all know building trust is a time-consuming process. Vendor managed inventory system is heavily dependent on trust since the supplier has to trust the buyer and keep the inventory at his place and yet be responsible for it.
Trust is certainly a factor that can build life-long business relationships if fulfilled properly by both parties. However, it is a long process, and therefore, the Vendor Managed Inventory system is meant for someone with grit to last longer in the market.
Duly fulfilling the responsibility of supplying the products
More Responsibility on the vendor part can be cumbersome if the vendor is not well prepared for it. Since the vendor has to take care of delivering the products and decide when the customer would need more goods. The vendor has to be prepared at all times with the ready products to be supplied as soon as he gets the information.
If the vendor is not able to responsibly supply the products in a given frequency then it risks gaining the trust between the buyer and him.
Be sound technologically
Smaller businesses are prone to have barriers to technology and are inefficient at deploying them due to their limited budget. In such a scenario, the Vendor Managed Inventory system cannot flourish. Vendor Managed inventory is reliant on technology and proper implementation of processes to be successful.
Thus, having proper technology and process in place can be a challenge at times for both vendors and buyers.
As clearly seen in the above details, a vendor-managed inventory system is a successful model for inventory management by giants mainly due to frequent inventory reviews, automated stock count, quicker and timely deliveries, good demand forecasting, and no stockouts or overstocking.
This system enables the companies to exploit the opportunities of using technology for better coordination and communication within the supply chain network. Hence, eliminating one of the biggest challenges of supply chain management.
Apart from the companies following these practices, end customers also benefit from this system immensely though unknowingly. Hence, this is the most fruitful of all the inventory management practices across the globe, mostly for the bigger enterprises.