Vendor managed inventory (VMI) is a growing practice that allows vendors to assume the full responsibility for managing an MRO’s inventory. In doing so, the MRO can increase their margins by cutting down on overhead costs. As more supply chain partners are looking for ways to simplify and streamline their operations, VMI will likely play an increasing role.

On the surface, it sounds like a dream solution. Companies can outsource inventory management for less than what it costs them to do it themselves. Additionally, they no longer have to worry about stock issues, backorders, shipping, or monitoring product availability. This can also translate into a better customer experience when the parts or items they need are in stock.

In the right situations, VMI can be a viable solution. Here’s a closer look at some of the benefits you can expect with vendor managed inventory services:

Cost Saving Advantages

Storing and managing inventory can be a costly part of doing business. From ordering to organizing, fulfillment and shipping, there’s a lot that goes into maintaining a warehouse. Outsourcing this part of your business can reduce your physical overhead costs and remove much of the guesswork associated with ordering.

Increased Customer Service

Vendors that have visibility into your customers needs may be better positioned to anticipate their inventory requirements. Vendors can better align inventory with customer demand to reduce overordering, coordinate manufacturer lead times, and avoid stock issues that could impact your profitability.

Customer Trust

Leaving your inventory management to a professional company, customer trust stands to grow. When you can avoid supply shortages and enjoy responsive service, your brand looks stronger as a direct result.

When It Makes Sense to Use Vendor Managed Inventory

VMI can make financial and logistical sense in many situations. If your inventory has gotten increasingly difficult or expensive to manage, outsourcing to a trusted partner may be in your best interest.

I encourage you to calculate the total cost of owning your inventory management. Include over- and under-stocking and all the time spent sourcing, receiving, organizing, and hunting down orders. At the very least, vendor managed inventory could be an excellent temporary solution while addressing any inefficiencies in your current processes.
For more supply chain insights, head back to the etaGlobal blog.