Vendor managed inventory can have many benefits – both from a strategic perspective and a tactical one. We are seeing that it is gaining in popularity as manufacturers and distributors and retail locations see the value of collaborating with supply chain partners to drive dramatic benefit across the supply chain.
Several of the top benefits include the following:
- Increased revenue – By partnering with customers on VMI and customer collaboration programs, you become a trusted and value-added partner. As new business opportunities arise, we’ve found that those who offer VMI typically have an advantage. First, the customer knows they will have what they need, where they need it and when they need it to satisfy demand. Next, the customer knows it is easy to work with a VMI partner and so will prefer to expand capabilities with them. And, lastly, the customer is likely to recognize these preferred suppliers.
- Responsiveness & agility – By collaborating up and down your supply chain, you build a greater agility and responsiveness into your supply chain. With a greater access to information and a quicker view of market changes, responsiveness will increase throughout.
- Improved customer service & reduced lead times – Often, this is the most critical benefit across the board. With VMI, there is better collaboration, information-sharing and visibility. In every client project, we dramatically improved service levels and reduced lead times.
- Accelerated cash flow – As inventory is managed across the supply chain, inventory levels can be reduced while service is maintained or improved. We have frequently reduced inventory levels to the customers’ target level while reducing supplier inventory by 20-60%.
- Improved margins – As the supplier is able to plan across the supply chain, he/she is able to optimize transportation, warehousing and production efficiencies internally while meeting service and inventory targets for the customer. We have seen rather significant improvements (around 20%) by pursuing this opportunity.