Advantages of Vendor Managed Inventory

Vendor Managed Inventory (VMI) plays an important function for the continuous supply of goods between a supplier (vendor) and the retailer. Do you want to know more about the advantages of Vendor Managed Inventory to your business?

If you know well the benefits and drawbacks of VMI then you can decide if this will work to your current business dealings.

What is Vendor Managed Inventory?

A certain business needs to optimize its inventory level for an uninterrupted supply of goods for its valued customers as a way of maintaining stable generation of revenues. For some reasons, if the business has no systematic way of sustaining a sufficient stock on its inventory, this will result to stock-outs and has a big impact on the profitability of the business. This can be resolved through a unique system of business model called as Vendor Managed Inventory or VMI. Learning the system under this scheme is vital so you can decide if it is a wise decision to apply it on your business.
Under VMI, the vendor (which is commonly the manufacturer) needs to ensure a consistent supply of goods for the retailer by taking full responsibility in managing the inventory and how to sustain it consistently. The vendor also is the one generating the order base on the information provided by the retailer. This is in contrast on a typical business model wherein the retailer is the one generating the order base on the actual consumption of its business while the vendor is required to fulfill the needs as stated on the agreement.

On the other hand, in a business model like Consignment Inventory, the vendor will provide the supply of stock to the retailer but there will be no payment unless the goods are being sold. Under this scheme, VMI is optional and not mandatory at al. Nevertheless, learning its benefits is crucial for business owners and here are some of those.

Benefits of Vendor Managed Inventory

VMI has mutual benefits concerning the vendor and the retailer, for the aim of maintaining sufficient level of stocks. Here are the lists of advantages under this system:

  • Improved Service to the Customer
  • If there is sufficient supply of stock, the retailer can fulfill its commitment in providing goods to its valued customers, thus increasing the trust of the consumers to the business. Same also goes with the vendor, if the retailer is totally satisfied with the persistent supply of goods this will result to a good relationship on both parties.

  • Strong Working Relationship
  • Due to a shared agreement, both parties can work out well in inventory planning thus minimizing the possibility of shortage of stocks that will affect both businesses.

  • Increased Profitability
  • Since there is stability on the flow of stocks, this will increase the revenues of the retailer as well as on the part of vendor because the retailer will continue to acquire their services.

  • Alleviates Data Errors
  • Because the vendor has all the information as supplied by the retailer, there will be less chance for data errors and the processing of requests is faster.

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