VMI gives vendors more control so they can accurately forecast demand. As a result, production can be more efficient. They can practice lean manufacturing and make frequent deliveries. Also, VMI reduces stock levels, and decrease stock shortages. They can better meet demand and reduce inventory errors and costs. Suppliers are able to develop stronger relationships with their customers through better quality service.
Vendors in VMI will become more valuable suppliers. In turn, this will increase the strategic communication. VMI can provide major benefit for both parties.
Since VMI gives vendors control, they can eliminate wastage, non-value adding factors, and other costs. Accurate planning cuts the cost of storing excess inventory and reduces obsolete stock. More importantly, vendors are able to eliminate stock shortages and the high delivery costs to ship expedited orders.
As mentioned, VMI can reduce overstocks and stock shortages. As a result, they are reducing the factors that cause uncertainty. But what exactly is vendor managed inventory?
Vendor managed inventory is an inventory management solution that offers a cost-efficient way of handling inventory. David F. He knows just about everything there is to know about vendor managed inventory, which is sometimes also referred to as "supplier managed inventory".
The customer provides the vendor with demand information, usually on a daily or weekly basis. This allows the vendor to observe demand almost as it occurs,« he says. The idea of vendor managed inventories was first adopted by consumer goods manufacturers. Common implementations today are with service parts and maintenance, repair, and operating MRO supplies,« David F. Pyke explains and continues:. Vendor managed inventory programs offer some obvious benefits and advantages for customers when it comes to inventory costs and delivery, as it allows them to pull inventory as needed and only pay for what is consumed.
This reduces the need for heavy inventory investments and increasing inventory turnovers. The precise benefits to the vendor will vary, depending on the situation.
Better demand information certainly can improve forecasts of the vendor, which in turn, allows the vendor to reduce its inventory without sacrificing service. In addition, a shift to a vendor managed inventory may enable smaller, more frequent shipments, since the vendor can anticipate customer orders. Vendor Managed Inventory or VMI is an integration process whereby vendors of a material manage as many factors of the supply chain as possible.
The essential difference between VMI and traditional inventory management is that rather than the buyer making independent decisions about order size, with VMI the buyer shares their inventory and demand data and their delivery parameters with the supplier vendor. By sharing this information, the buyer enables the supplier to determine the order size. Consequently, the supplier is responsible for managing the supply chain from end-to-end and the buyer is responsible for the provision of accurate and timely information necessary for forecasting.
Vendor Managed Inventory works by creating a symbiotic relationship between both sides of a transaction that allows the parties to share risk and work together for shared benefits. VMI will generally involve management of all aspects of the supply chain including sourcing of the materials, overseeing trends in the market, managing the shipping process and delivering the required destination and warehouse.
For the buyer, VMI will ensure the only factor they are concerned with is the delivery date of the raw material or product to its final destination. Better communication, stock management and inventory accuracy, forecasting and overall service is possible through VMI as intermediaries are removed to create a service that has considered all aspects of the supply chain and any areas for concern. This allows VMI to decrease the impact of the bullwhip effect, a phenomenon that sees accuracy of information on customer consumption decreasing in accuracy as you move further up the supply chain further from the consumer.
By keeping analysis of consumer behaviour and appropriate stock size in the hands of the supplier, VMI prevents excessive stock and inefficiency in the supply chain. The immediate benefit is that the buyer deals with the supply chain as little as possible. This reduces workload for the buyer and allows the supplier to take charge of the order size in addition to the logistics of making the stock available. VMI mitigates the risk of becoming out of stock or oversupplied, because it allows increased transparency and communication.
Improved Workflow and Productivity — Inventory management alone cannot promise increased productivity for your organization, but the improved workflow it provides can certainly help. A good VMI partner will assess your current workflow from receiving to routing to replenishment and find ways to remove steps, saving time and money Valued Partnership — VMI is a true partnership in which both entities are focused on efficiency and profitability.
VMI partners can offer you more supplier diversity, guarantee on-time delivery where and when you need them, and look for ways to continuously enhance your operations for cost savings and quality improvements.
Finding A Trusted VMI Partner The promises of inventory management are many: lower costs, fewer stockouts , less waste, higher inventory turnover and better forecasting. Leave A Comment Cancel reply. Related Posts. November 2nd, 0 Comments. October 21st, 0 Comments. September 28th, 0 Comments.
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