How Vendor Managed Inventory (VMI) Can Improve Your Business

In today’s competitive business landscape, companies need to take all possible steps to increase efficiency, enhance productivity, and reduce downtime. This can sometimes mean outsourcing aspects of your business to a third-party provider. 

In this post, we will take a close look at Vendor-Managed Inventory (VMI) initiatives and how, when implemented efficiently, they can improve your business. 

What Is Vendor-Managed Inventory?

Inventory management is an ongoing challenge for business owners. This is particularly true in the manufacturing space, where companies may require large quantities and many different inventory items. In the typical customer-managed inventory model, the manufacturer needs to keep accurate track of inventory, forecast demand, flow down material requirements, maintain a healthy pipeline, and make planning decisions such as inventory investment and turnover.

In the vendor-managed inventory model, the manufacturer outsources these tasks to a third-party vendor. This vendor is then responsible for ensuring that the manufacturer always has the inventory it needs, when it needs it. 

VMI can work in several different ways, and the specifics of a VMI arrangement are down to the manufacturer and vendor to agree upon. For example, in some instances, the vendor company might send staff out to the client’s site to physically review inventory levels, assess needs, and deliver replenishments. For very large or complex companies, the vendor might employ a staff member based at the client’s site, whose sole job is to manage their inventory. 

In other cases, orders will be handled remotely, perhaps by giving the vendor access to the client’s inventory system or using a dedicated VMI software tool. In these instances, the vendor will check and review the client’s inventory at agreed intervals and arrange delivery of replenishments as necessary. 

Never Run Out or Over-Order

For businesses in the manufacturing space, running out of key items of inventory can have a major knock-on effect, slowing down or even halting production. This can mean that projects get delayed or that customers do not receive their orders on time. 

A valuable VMI system ensures that manufacturers always have the items they need in stock. This ensures continual production and significantly reduces the risk of downtime. Every time you have to slow or pause production, it costs time and money. This upfront investment can actually save you money by preventing these outages. 

VMI also mitigates the risk of over-ordering or having to store excess inventory on site. It is far more efficient than just-in-time (JIT) ordering, which requires a member of your team to order inventory at precisely the right time. JIT ordering also carries a high level of risk, should there be a disruption to the supply chain at a critical moment. 

Build Long-Standing Relationships

It is beneficial to both manufacturers and vendors to have a long-standing relationship built on trust. The client knows that they will receive the items they need, when they need them, and that those items will be of a consistently high quality. Likewise, the vendor enjoys a steady and reliable income from a trusted client and, as long as they continue to fulfill their obligations, a VMI arrangement reduces the likelihood that the client will look elsewhere. 

When the vendor has a robust understanding of their customer’s business and inventory needs, both parties benefit. 

Embedded Employee Scanning and Replenishing

An embedded scanning and replenishing system allows employees, or sometimes even technology, to automatically notify the vendor or supplier when an item has run out or when stock is running low. This cuts out many steps of the traditional purchase approval process and saves time. It also gives employees on the ground more ownership over the inventory stock that directly impacts them, allowing them to quickly and efficiently replenish bins at “point of use” stations.

Other VMI methods such as bin scanning—in which a vendor employee physically scans barcodes on each inventory bin with a handheld scanner to review and replenish stock—require a vendor employee to be on site. This automated scanning and replenishing process removes that need.

Demand Forecasting

Demand forecasting involves understanding what inventory items clients are likely to need in the coming weeks and months. It can play a significant role in strategic planning for manufacturing businesses. 

As a VMI supplier, Fastbolt can work jointly with our clients to better anticipate their needs. This forecasting can be based on historical data, but, given ongoing challenges to the supply chain and increased lead times, it is even better if customers can provide us with their own strong data about the upcoming months. 

For example, demand might change if a client has a particularly significant or time-sensitive project coming up, is experiencing growth, or expects significant seasonality. Electronic Data Interchange (EDI) technology can be utilized to allow clients and vendors to share information and build this thorough forecasting picture. 

Strong demand forecasting brings increased efficiency and effectiveness, permits planning for lead time contingencies, minimizes downtime or delays at critical times, and avoids inventory overstocking.

Cut the Cycle Time

VMI can significantly reduce the ordering cycle time. Once a VMI arrangement with the preferred supplier has been put in place, the client will not need to go through the time-consuming processes of researching suppliers, comparing deals, and placing orders. 

VMI also reduces the amount of ongoing quality assurance (QA) required, simplifies the product receiving process, and allows for simple and consolidated invoicing. All of this saves the client time and increases productivity. It can also cut down on costs to the client, particularly when there is a consistent portfolio among geographically dispersed manufacturing facilities. 

Conclusion

Inventory management is a critical piece of the business success puzzle for many companies, and particularly those operating in fields such as manufacturing. Getting inventory control right can be a challenge, and making mistakes or missing something at a crucial moment can be costly, both monetarily and in terms of time. This is where Vendor-Managed Inventory, or VMI, can help you save time, save money, and operate your manufacturing business more efficiently. 

Here at Fastbolt, we are a trusted supplier of key inventory items and provider of VMI services to businesses throughout the United States and Canada. If you would like to learn more about how we can work together to grow your business, get in touch with a member of our friendly and knowledgeable team for a no-obligation quote to learn more.