Vendor Managed Inventory (VMI) has consistently provided significant advantages for both the supplier and customer.
For the customer, VMI results in increased profitability due to:
Reduced Inventory (Increased Turns)
One of the biggest opportunities for customer savings from VMI is the reduced cost of carrying inventory. VMI helps increase turns by reducing the need for safety stock, because:
Reduced Administrative Costs
VMI fundamentally reduces the cost of purchasing administration for the customer:
The customer and supplier are using common data, and there is a constant flow of information. For instance: if the supplier changes carton quantity or lead time, the next order would automatically reflect that; or if the customer changes a catalog number by mistake, that would show up in the next product activity report and the supplier would recognize the error.
Typically, over 50% of buyer time can be re-allocated to more value-added functions.
Fewer stock-outs or shortages
VMI improves customer service rates (fill rates) due to fewer stock-outs. Primarily, VMI does this for the same reasons it reduces the need for safety stock:
As described above, VMI offers the benefits of improved turns, reduced administrative costs, and fewer stock-outs to all types of customers: including distributors, retailers, OEMs, and product end users.