November 2, 2020

5 Reasons Why You Need Vendor Managed Inventory Right Now

Author: Stockpile Reports

2020 has been a bit of a rollercoaster ride for everything and everyone, with many businesses scrambling to survive in these uncertain times. As we head into the closing chapters of this notoriously memorable year, we have both good news and bad news to share. The good news is the US economy is doing better, with the Gross Domestic Product (GDP) having had a record 33.1% upswing in the third quarter of 2020. The bad news is that it’s still recovering, with the GDP being down by $670 billion when compared to 2019.

Every Advantage Matters Today

Economic recovery tends to be slow and gradual. By giving your business a shot in the arm through constructive action, you can ensure it remains healthy and, indeed, flourishes despite the sluggish economy. A practical, high-ROI impetus would be implementing a Vendor Managed Inventory (VMI) solution. Your inventory is at the core of your business and when you make a positive change in how you handle it, the rewards can be immense.

A VMI, if you’re new to the concept, involves allowing the supplier or vendor of your stockpiles to replenish, monitor, and, in some cases, manage your inventory. In manufacturing, construction, and similar industries, this is your supplier monitoring your stockpiles and then topping them up before they run out. It frees you up from the responsibility of managing it yourself and brings several benefits besides.

5 Ways a VMI Helps Your Business

1. Never go out of stock

Managing your inventory levels is a bit of a juggling act. You need to ensure you have enough on hand to feed operations when they need it. However, you can’t overstock either. Not only does overstocking tie up your capital, but you also pay for the storage and foot the bill when any material expires due to its limited shelf-life. Some businesses end up ordering the bare minimum they need. And when demand escalates or their supplier misses an order, they have to deal with a stockout.

Stockouts cause production to stall and lead to many disgruntled people – including customers – down the supply chain. With a VMI, the supplier monitors your material levels in real-time and handles the restocking for you. They can plan around delays in their own supply chain to ensure they never miss an order. The result? Stockouts are eliminated.

2. Reduced carrying costs

Holding and preserving material stockpiles is a constantly-ticking expense meter. You have to pay for the transportation, storage, security, auditing, unsold inventory, and countless other related overheads big and small. The more material you have on hand, the higher the overheads. And when you order more than you need to safeguard against stockouts, then expenses tend to multiply and write-offs become numerous.

A VMI drastically reduces carrying costs by allowing you to have only what you need – no more and no less – onsite. You can keep a tight rein on your expenses.

3. Less waste & write-offs

When you carry inventory, waste is a given. The write-offs will probably be frequent and many, ranging from floor spillage to inventory damage and shrinkage to counting errors. The write-offs can be minor or major, but they tend to pile up and become a burden for your business. For larger businesses with huge inventories and multiple stockpiles, the final loss often passes the multi-million dollar mark.

By using VMI, you can reduce your write-offs by a significant amount. How? If you implement VMI, you will be installing a real-time monitoring and data gathering solution. This gives you a better grasp of on-site conditions. You can handle your inventory better and make decisions backed by facts as opposed to estimates. Moreover, you can smooth out your supply chain and operate efficiently.

4. A smoother operation

If you’re managing the stocking yourself, it’s going to be a bumpy ride. Even if you have a handle on your organizational demand and have the optimal re-ordering point figured out, you only have limited insight into your supplier’s inventory. You can’t foresee any problems they are about to have, which is bound to affect you down the road. Further, it’s hard for your managers to coordinate with each other and remain on the same page about incoming orders and your organizational needs.

Using a VMI makes a lot of sense if you want a smoother operation. The vendor manages everything for you, from transportation to stocking, and your managers can remain on the same by looking at the same data, leading to fewer communication gaps.

5. Happier customers

When you miss an order due to a problem in the supply chain, your customers are going to be unhappy, to say the least. A hiccup in your business causes a similar hiccup in theirs. They could end up having their work stalled and losing money. They will probably think twice about ordering from you again. If the delays are frequent, they may head over to a competitor.

With a VMI, you can keep the delays to a minimum and make sure your customers remain happy. When you gain your customer’s trust, they will continue doing business with you.

VMI is Synonymous with Certainty

Security is at a premium in these turbulent times. A VMI system is backed by reliable technology and can be depended upon. Thanks to real-time monitoring and data-gathering, the system spots possible crinkles in the supply pipeline well in advance – and gives you the information you need to deal with them effectively. More importantly, it frees up your time and other resources. You can spend less time managing your inventory and focus on growing your business.

Conclusion

A VMI is a collaborative effort between you and your vendor. Building an efficient VMI system requires some research and effort on your and the vendor’s part, but it’s a worthwhile endeavor. SR can help you create a smooth, reliable VMI system, customized for your business, by working closely with you and your supplier. Our inventory monitoring solution delivers accurate, real-time data to overcome communication breakdowns, the number #1 challenge faced by VMI systems.