Companies use vendor-managed inventory or VMI to improve efficiency. Is VMI just a stopgap measure or will it last when demand returns or changes?
Vendor-Managed Inventory is considered as one the ways of managing the inventory of an organization. A company commonly manages its own inventory. In the case of Vendor-Managed Inventory, the vendor or supplier that provides the items in that inventory manages the inventory.
A retail store that requires dry goods from a supplier would have the inventory of these dry goods managed by the vendor in a Vendor-Managed Inventory setup. The store would provide the facility or space needed to contain the inventory, but it is the vendor who would be responsible for ensuring that the inventory is stable and that the items in that inventory do not go out of stock.
Shift of Responsibility in Vendor-Managed Inventory
Under Vendor-Managed Inventory, the responsibility for the maintenance of the inventory is shifted to the supplier and away from the company that has that inventory. Such shift in responsibility implies that some form of benefit to the company that uses such inventory. The shift in the responsibility means that the company would not need to assign specific individuals for the maintenance of the inventory. In addition, in a Vendor-Managed Inventory, the company would not be responsible for item losses or damages that are incurred along the course of the management of the inventory. Thus, to some extent, the company benefits from VMI because there would be less risk for the firm.
Benefits of Using VMI
The main function and benefit of Vendor-Managed Inventory is to ensure that inventory items do not go out of stock. This means that VMI ensures that the firm has a stable supply of materials or goods that can be used for the company’s needs, including sales, as in the case of a retail organization.
An important effect of the use of a Vendor-Managed Inventory is that supplier also benefits from the setup, considering that the supplier would have greater control of the inventory of its products at the location provided by the firm. For instance, because the supplier of dry goods would be the one managing the dry goods inventory of the company, it is the supplier who would have considerable control over the flow of the items and the documentation of such flow in and out of the inventory. Thus, in effect, the supplier also benefits from the use of VMI.
The use of Vendor-Managed Inventory can also benefit the supplier in terms of the promotion of the supplier’s products. For instance, because the supplier would be involved in the management of the inventory, the supplier would be able to ensure that the products that come from the inventory into the processes of the organization are in good condition, such that the company and its members would perceive the product to be of high quality. In addition, the vendor could even talk about the product with the employees in order to ensure that the company properly uses the products. Moreover, the company can also use the vendor representative to provide discussions about the product to the actual buyers or users of the product, thereby increasing the likelihood of customer satisfaction. In turn, the company is able to ensure that it properly uses the products that it gets from the vendor, and that the use of the
Is Vendor-Managed Inventory a Stopgap Measure?
In terms of stopping the gap between the actual demand and the actual supply of the product, Vendor-Managed Inventory is effective. This is the main initial reason why VMI has been developed and implemented in companies in the first place. However, VMI can also serve functions other than minimizing or preventing the demand-supply gap. For instance, Vendor-Managed Inventory can be used to ensure proper use of items or products that contained in the inventory. In addition, VMI also benefits the firm in terms of the reduction of risks tied to the losses and damages that could be incurred in managing the inventory. Moreover, VMI benefits the supplier in ensuring that its products are used properly. Also, VMI allows suppliers to have better control of the products that it provides to the firm. The supplier is also more able to adjust its production level to suit the needs of the inventory of the firm.
The benefits of using Vendor-Managed Inventory are quite considerable for both the company and the supplier. There is a mutual beneficial relationship between the company and the supplier. Thus, even though VMI is commonly considered as a stop gap measure at times of drastic changes in demand, the benefits that the company and the supplier experience as a result of VMI would prompt them to use VMI on a regular basis or on a continuing basis. Vendor-Managed Inventory is not just a stopgap measure, but serves as a means of managing the inventory of the company. VMI serves as a means through which the company is able to improve the stability of the supply of its materials or goods.
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