Vendor-Managed Inventory

What is Vendor-Managed Inventory?

Vendor-managed inventory (VMI) is a supply-chain mechanism in which a vendor takes responsibility for maintaining a client’s inventory levels. The vendor monitors inventory levels and decides when to replenish stock and how much inventory to refill. The vendor-managed inventory system takes the burden off the client’s shoulders which streamlines supply-chain efficiency and frees up facilities management personnel to address more critical tasks.

Vendor-Managed Inventory Overview

The VMI system is a strategic approach to inventory management that utilizes real-time data and leverages close vendor-buyer relationships to optimize inventory levels and reduce costs. The vendor determines appropriate inventory levels by using client-provided data, such as current stock levels and sales projections. The goal of a vendor-managed solution is to ensure that clients have sufficient stock to meet demand while minimizing inventory-related costs. 

Key Components of the VMI Model

For a vendor-managed inventory solution to be successful, the system relies on a number of vital elements. These components include: 

Data Sharing 

Clients and vendors need to maintain continual communication to facilitate accurate supply management. Many inventory software systems can closely track inventory levels and alert users when supplies reach a certain threshold for replenishment. When vendors have access to these client systems, clients are able to maintain a hands-off approach, leaving monitoring and restocking responsibilities fully in the vendor’s hands. 

Inventory Replenishment

Traditional inventory management typically involves facilities managers or purchasing personnel tracking inventory levels and notifying suppliers of their needs before critical items run out. Advanced modern automation systems enable a VMI vendor to take charge of monitoring inventory levels and overseeing order fulfillment. 

Demand Forecasts

Vendors who use inventory-tracking systems are able to analyze sales trends while also tracking a client’s current supply. The ability to gather inventory data and sophisticated analytics empowers suppliers to anticipate a customer’s future inventory needs and prepare well in advance. This streamlines inventory-management processes and ensures clients will have what they need when they need it. 

Order Generation

In a modern vendor-managed inventory model, the supplier is typically responsible for generating orders. The client may approve or modify the order’s contents based on predetermined thresholds and changes in production or delivery schedules. In some instances, clients may want to take it upon themselves to create and submit orders, in which case the vendor takes care of all subsequent activities.

Vendor-Managed Inventory in Facilities Management

The VMI method offers numerous advantages for facilities management efforts. Having crucial maintenance, repair, and operations (MRO) materials, janitorial supplies, and office products restocked as needed offloads much of the mental workload for managers. By managing these inventories, vendors can ensure that facilities have the right products at the right time, reducing the likelihood of running out or overstocking. Here are some other vendor-managed inventory benefits facilities managers can enjoy by implementing a VMI model.

More Efficient Operations

VMI streamlines operations by reducing the administrative workload on facilities managers. Having the vendor manage inventory levels and generate orders enables facility managers to focus on core operational responsibilities and offload the minutia of inventory management to their suppliers.

Cost Savings

Vendor-managed inventory can reduce overall expenses by optimizing inventory turnover. Automated monitoring and replenishment frees up valuable space by reducing the need to keep large inventories. VMI also reduces the risk of accumulating obsolete stock, because VMI providers tend to be more attuned to changing customer demand and can adjust their supply accordingly.

Implementing Vendor-Managed Inventory

A successful vendor-managed inventory entails careful planning and a clear understanding of the organization’s goals and capabilities of both parties involved. These elements can help your business implement an effective vendor-managed inventory plan:

• Technology integration: Integrating a reliable computerized maintenance management system (CMMS) with an inventory management platform helps gather, analyze, and share inventory data between vendors and customers.
• Collaboration agreements: Outlining and cementing a VMI agreement helps set the expectations and determine the responsibilities of each party.
• Performance metrics: Establishing inventory-management metrics and determining stock thresholds helps to quantify the success of a VMI initiative.

Challenges in Vendor-Managed Inventory

VMI offers significant benefits to facilities managers and company leadership. However, there are a few obstacles to be aware of, so that you’re prepared if they ever arise.

• Vendor dependency: When the supplier manages all inventory-management activities, it’s critical to thoroughly vet vendors to ensure the company partners with the most reliable third-party sellers.
• Systems integration: Vendors and clients need to utilize compatible IT systems to effectively monitor and organize current inventory data between the two sites. Such integrations often require a significant up-front investment.
• Third-party control: Clients may feel a sense of loss when turning inventory management over to a third-party agent. Thorough supplier vetting can help calm some concerns associated with relinquishing control.

Benefits of Vendor-Managed Inventory

A well-executed VMI solution can provide numerous advantages for managing inventory. When implemented well, this inventory management approach can result in:

• Optimized inventory turnover: Efficient inventory management promotes higher turnover rates, helping to ensure that clients don’t receive or use obsolete materials.
• Enhanced relationships: This system of managing inventory promotes closer collaboration between suppliers and customers, which can strengthen the relationship between the two.
• Lower carrying costs: Lower inventory levels help reduce inventory-related costs, which can include such expenses as storage and insurance.

Vendor-Managed Inventory as a Strategic Advantage

A VMI solution provides a strategic advantage that enables companies to respond to market changes with precision and agility by reducing lead times while enhancing service levels. For facilities management, vendor-managed inventory ensures resources are used efficiently and calms worries of operations stopping due to inventory issues. 

Vendor-Managed Inventory in Summary

Vendor-managed inventory strategies represent a shift towards efficient and responsive supply-chain management. By taking advantage of vendor expertise and the power of real-time data, facilities can optimize their inventory management processes, enjoying improved operations and a reduction in overall expenses.