The Pros & Cons of Vendor Managed Inventory

The Pros & Cons of Vendor Managed Inventory

About 46 percent of SMBs either don’t track their inventory or use a manual system to do so. It’s a shocking statistic, given how essential inventory is to a company. 

Without proper inventory management, you may end up with either excess inventory or less than enough inventory. Too much inventory takes up more space in your warehouse, besides tying up money that should be used in other areas of your company. On the other hand, inadequate inventory can cause production shutdowns, order delays, missed sales, and angry customers.

One way to get it right is through Vendor Managed Inventory (VMI). In this post, we tell you all you need to know about this system.

What Is Vendor Managed Inventory?

Vendor Managed Inventory (VMI) refers to a supply chain system that does inventory replacement for you. With VMI, you don’t need to initiate purchasing orders manually. Most top companies today use VMI to handle various supply chain aspects.

Pros of Vendor Managed Inventory

VMI can do a lot for your business, which is why the system has increased in popularity through the years. Here are two key benefits of Vendor Managed Inventory. 

Enhanced Efficiency

VMI enhances efficiency in a variety of ways. For instance, it shortens the supply chain and leads to fewer stock-outs. VMI also ensures that you have the stock you need at the appropriate time.

With VMI, you have better communications throughout the supply chain. This ensures a more consistent inventory.

Cost Reduction

VMI helps reduce costs in a variety of areas. For instance, the largest cost for original equipment manufacturers (OEM) results from line shutdowns. VMI helps avert these shutdowns by making sure there’s no shortage of critical parts.

VMI prevents stockouts and cash flow restrictions that come from your inventory from being tied down in non-nettable locations. 

Disadvantages of VMI

While Vendor Managed Inventory helps solve numerous supply chain issues, it isn’t without risks. Here are two of them. 

Suppliers That Don’t Deliver

Sometimes, a vendor isn’t big enough or doesn’t possess the expertise and processes needed to handle your orders. Working with such a supplier can cause more stress to your business. Other similar issues include inventory that’s consistently late or isn’t up to the quality you expect. 

That’s why you need to do your due diligence when choosing a box supplier or some other vendor that you need to handle your inventory management.

Increased Vulnerability

Using VMI means exposing your business data to a third party. Given that you depend on the vendor to handle the most important aspect of your company, supplying orders to customers, you are forced to maintain transparency. There’s always the possibility that your vendor might take advantage of your confidential information.

The best way to reduce your vulnerability is by doing your research and only choosing reputable vendors.

Use VMI to Stay on Top of Your Inventory Management

Inventory is your company’s biggest asset, so you need to protect and nurture it if you’re to save and make money. Taking advantage of the strengths of Vendor Managed Inventory while also minimizing its risks can help you stay ahead. 

Would you like to read more great content about how VMI can help your company? Please keep visiting our blog for featured articles.

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