What Is Vendor Managed Inventory, and How Does It Work?

When well-executed, vendor managed inventory (VMI) is a cost-effective and efficient way to manage the supply of goods. This is one of the reasons VMI is on the fast track to becoming an essential service in global supply chains. 

However, what exactly does VMI involve? Vendor managed inventory is an integration process. A process in which the vendors take on as many factors of the supply chain as is manageable. 

Typically, inventory management requires that buyers manage their inventory in-house. They monitor stock levels and put together a purchase order for their vendor when products reach their reorder points. 

A critical element of this approach is making independent decisions regarding order size. This approach is the point of difference between traditional inventory management and vendor managed inventory.

With VMI, buyers share their inventory, demand data, and delivery parameters with the vendor. This enables the vendor to determine the order size instead, making inventory, supply, and reordering-related decisions their responsibility.

How does vendor managed inventory work?

For a vendor managed inventory to work as intended, it is crucial that the buyer shares data with the vendor. This is why both parties must have efficient stock management systems to facilitate data sharing. 

In order to share real-time data digitally, it is necessary to use reliable inventory management software. Communication regarding specifics is also key when it comes to setting up an effective vendor managed inventory arrangement.

This kind of partnership necessitates that the buyer and vendor must agree on various factors. Factors like how to track stock performance, transaction costs, and min-max levels. Also, the storage location of the stock, among other factors.

Once these matters have been settled satisfactorily for both parties, the vendor managed inventory process will involve the following steps:

• Shipping the stock

First and foremost, the VMI process typically begins with the vendor shipping the stock to the buyer.

• Monitoring sales patterns

Next, with the buyer’s sales data, it is up to the vendor to monitor the sales patterns of these products. As they do so, they must plan ahead for any upcoming promotional periods.

• Reordering stock

Then, it is the responsibility of the vendor to reorder stock as needed and deliver it to the buyer. This should be done in line with the predetermined min-max levels. Also, taking into consideration the lead times of each product.

• Shipment notification

Instead of having to raise a purchase order, the vendor will notify the buyer whenever products have been shipped.

What are the main benefits of vendor managed inventory?

When it comes to vendor managed inventory, both the buyer and vendor share the transaction risks. However, it is also possible for both sides to reap benefits from an effective VMI arrangement.

In fact, vendor managed inventory is advantageous for both the buyer and the vendor when done properly. The following are some of the most significant benefits of VMI:

The Benefits of VMI for Buyers

VMI can be beneficial for buyers of all types and sizes. However, it is particularly helpful when you have to manage inventories containing thousands of items. Especially when your inventory consists of fast-moving consumer goods.

The primary benefit, you do not have to worry about tracking stock levels. Inventory planning and ordering are no longer your concern. This leads to substantial savings in terms of both time and money.

Additionally, participating in VMI, means taking fewer risks than with traditional inventory management. For instance, with a consignment deal you will not have worry if the goods do not sell.

Also, VMI minimizes the risk of you ever running out of stock or having too much stock.  

The Benefits of VMI for Vendors

VMI is mutually advantageous for vendors as they work with the buyer for benefits in their retail store.

In addition, having access to sales data facilitates more accurate demand forecasting. This makes it possible for vendors to plan production with accuracy so that they can meet the demand. It also removes having to deal with costly situations in which there is an over or under supply of products. 

Effective VMI helps ensures the right product quantity at any given time. It can limit storage levels and costs too. The arrangement of a VMI agreement also means entering into a long-term, financially beneficial relationship with the buyer.

Wills Transfer Limited – Reliable Vendor Managed Inventory

If you would like to benefit from a vendor managed inventory arrangement in all the ways mentioned above, or if you are seeking 3PL warehousing and distribution in Ontario, Wills Transfer Limited can help. 

We can optimize your supply chain by working closely with you and your vendor. Especially when it comes to your min-max inventory levels.  

As your VMI distribution centre, we will:

• Facilitate monitored inventory levels
• Increase fulfillment levels
• Provide increased flexibility
• All while decreasing stock outs and cutting down on operational costs.

In addition to providing a VMI arrangement, Wills Transfer Limited offers managed 3PL warehousing and distribution services in Ontario. Custom-tailored to suit your business model. 

Our talented 3PL experts are equipped to handle dispatching, receiving, picking and packing, shipping, and health and safety support, just to name a few.

For more information about how we can facilitate 3PL warehousing and distribution in Ontario, or to learn more about how we can simplify VMI for your business, call Wills Transfer Limited at 613-704-7549 or contact us here.