Vendor managed inventory, or VMI, is one of the many methods of inventory control. VMI can help optimize inventory value while lowering the costs of inventory management. When properly implemented, VMI allows facilities to maintain available parts or materials for maintenance without tying up too much of their money on these inventories.
What is Vendor Managed Inventory?
VMI is the inventory management method where facilities transfer the responsibility of managing stock levels to their suppliers. The user facility or company allows a vendor or supplier to deliver and replenish their inventory. Generally, the user has the option of paying for the used stocks or paying for the replenished items.
Vendor managed inventory is ideal for low-cost, high-volume, and consumable items. Examples of these items used in maintenance are safety gear like hard hats and gloves, spare parts, lubricating tools, maintenance, cleaning supplies, etc.
VMI starts with the user and vendor agreeing on the stocking levels, transaction costs, and other ordering details. The vendor can then deliver the stocks to the user and monitor the stock levels. Depending on the actual item movement and forecasted levels, the vendor can recommend schedules and quantities for reordering. The vendor sends replenishments once the company approves order recommendations.
Advantages of Vendor Managed Inventory
Outsourced Inventory Control
The main benefit of using VMI is it saves you the trouble of monitoring your stock levels, forecasting your requirements, and scheduling purchase orders and deliveries. If your supplier is competent and reliable, they can help you prevent overstocking or stockouts.
Reduced Carrying or Stocking Costs
With VMI, your facility can maintain the lowest possible stock levels for your inventory. Low stock levels mean you can use more capital in growing the business. And minimal stocks also mean the associated costs of storing and maintaining them are lower. Keeping a smaller inventory means less storage space, staff salaries, and other overhead expenses.
Optimized Ordering Process
Because vendors are the first to identify your stock needs, they can arrange and deliver required items faster. VMI saves you time tracking stock levels and confirming them with the actual stocks. It also prevents ordering errors such as double orders or missed orders.
Maintenance requires a wide range of materials and tools. Keeping track of stock levels for all these items can be overwhelming and prone to errors. Vendors managing the inventory of their respective items result in more focused forecasting. It means that your vendors can plan and calculate orders for particular items instead of you managing all items all at once.
Implementing VMI also helps you reduce downtime by having someone replenish your inventory before you run out. And even if you do run out before your vendors deliver, ordering and delivery take less time, leading to a shorter downtime.
Disadvantages of Vendor Managed Inventory
Risk of Misinformation
Vendors depend on accurate and updated information to provide effective forecasting and order schedules. If you don’t record your usage accurately or provide timely stock information to your vendors, they can send more than you need. Alternatively, they may miss out on replenishing your critical items.
Relying on a Third Party
When you let your vendors monitor and manage your inventory, you risk relying on a third party that may or may not have your best interest at heart. They can charge you higher prices, deliver low-quality items, or provide poor service. Analytics, logistics, forecasting, and other inventory aspects are also beyond your control.
If you allow your vendors access to your inventory data, you run the risk of data theft, breach, or leak. Without an adequate confidentiality agreement, your vendors can divulge sensitive information to your competitors and other companies who can use your information for their gain.
Manage VMI and Improve Maintenance Inventory Management with CMMS Software
When implementing vendor managed inventory, stock data is crucial. You must record and update stock usage accurately and on time. Also, you must allow your vendors access to stock records in a fast and secure way. Using a CMMS, or computerized maintenance management system, lets you do this and more! Redlist’s CMMS automatically updates your inventory with every accomplished maintenance task. It also keeps accurate records of stock levels that your vendors can view at any time for accurate forecasting and ordering. You need Redlist if you are implementing VMI, but it’s also useful in streamlining in-house inventory management. To learn more, schedule a free demo with us!