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Vendor Managed Inventory

3 November 2020

Managing logistics and the delivery of your product on a higher level! Why reinvent the wheel when you can use a vendor who uses the latest technologies and has expertise in stock, inventory and shipment both national and international. Set your focus on marketing and selling your brand and let a third party handle the shipment, stocking and order process. Rompa has been using VMI for many years and is happy to explain all about it in this article. 

What is Vendor Managed Inventory?

Vendor Managed Inventory (VMI) has been around since the '80s and was invented by Procter & Gamble and Walmart. Since then, VMI became the number one distribution system for companies worldwide. For example, 80% of the electrical industry suppliers use the VMI program in their supply chain.

So, how does Vendor Managed Inventory work? When a company decides to start using the VMI system, it means that they authorize a supplier to manage inventories/stock at the customer location. The key of VMI is that stocking is being done based on data and analyses on the demand of the product. You might also have heard of Supplier Managed Inventory (SMI), and we can hear you wondering: ¨ What's the difference?¨. The difference is: VMI is specially made for suppliers, and SMI is set up for customers. But the concept is basically the same.

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Why use Vendor Managed Inventory?

Implementing VMI in your company might be a smart move. However, you have to make sure this logistic program is suitable for your products. An easy way to decide if your company is ready for a VMI system is when you have repeatedly come to a point where you knew you could have saved time and money if the distribution would have been outsourced. This way, you and your employees would be able to focus more on marketing, sales and the overall business concept. Another reason to adopt the VMI system is when your company's stock is based on guesswork instead of on data.

Advantages and benefits of using Vendor Managed Inventory

Below a list of advantages and benefits for a company to start using the VMI system:

  • Higher efficiency is one of the main reasons to choose VMI. Too much stock is expensive and takes up room, while a shortage of supply gives you delays and unhappy customers. The key is having the right balance! 
  • Stocking of products is based on data and not on an independent decision or guesswork by an individual. A business will not run out of stock as the VMI system makes sure everything is up to date.
  • Since data collection helps to restock, this could mean a lower inventory; which saves costs for the business.
  • With an optimal VMI, the supplier will have fewer stock-outs; this means an increase in sales.
  • Less need of manpower as stocking is automatically organized; this results in cost saving.
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Disadvantages and challenges

Using the VMI system can also have its disadvantages, but we would rather call it challenges. We will always find solutions for every project; each project is different and has different needs. Below we list some challenges that can occur and what should be kept in mind:

  • Less control over the delivery. This means that trust between all parties is necessary.
  • VMI is based on data and forecasts. If a certain product is launched in an unpredictable market, it might become challenging to use VMI, as data will change too fast and become irrelevant for your product. Consider, for example, a swing of sales based on a change of the season.
  • Not all products are suitable for VMI, like products with an expiry date.

VMI at Rompa

At Rompa, we created a 6 step service for all our clients. From idea to delivery, we provide a complete package. It is tailored to every client's project in cooperation with a project manager at Rompa. Would you like to read more about these service steps? Have a look at our website, where we explain our 6 step service!

When we reach step 6 - the final step - this means delivery time! While our clients focus on marketing and sales, we take care of delivery. Rompa has many years of logistic experience, both national and international. We make sure that your product gets to location as requested. To do this, Rompa uses the VMI system! We also offer Consignment Stock in case VMI is less suitable for your product. Make sure to talk to our experts to decide what logistic system is optimal in your case.

Contact Rompa for more information

There is so much more to tell you about VMI, and we would be happy to tell you all about it! Would you like to speak to our specialists about this? If you are not sure when to use Vendor Managed Inventory or how to implement this, don't hesitate and contact us! We at Rompa are always happy to answer all your questions and give you additional advice.

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