Vendor Managed Inventory Replenishment
Have you been approached by one of your customers about starting a Vendor/Supplier Managed Inventory (VMI or SMI) relationship, or are you considering implementing one with your suppliers? While there can be benefits to both parties in a VMI relationship, there are pitfalls to avoid in order to establish a successful partnership.
Potential benefits include:
- Shorter lead time
- Reduced inventories (for both parties)
- Greater manufacturing efficiencies
- Stronger relationship with your customer/supplier
Potential issues include:
- Accuracy of data: Without accurate and timely reporting of current inventory quantities and planned consumption (planning schedule), it is impossible for a supplier to keep their customer properly stocked with inventory.
- Exchanging data: Are both partners “on the same page” with the transmission methods (traditional EDI, XML, spreadsheets, proprietary formats, etc) and frequency?
- Managing the data: Depending on the number of products a supplier provides to a customer, the volume of data to be managed on a daily basis can be staggering – current inventory quantities, month’s worth of planned consumption data, min/max inventory levels, etc. As a supplier, are you going to add to your staff to manage this additional data, or will you be looking for a software solution to help your existing staff manage all of this new data?
- Consignment inventory: Some companies implementing VMI are also wanting to convert the inventory to consignment – meaning that they don’t own (or pay for) the goods until they pull them out of inventory and send them to the production floor (or sell them in the case of a final product). This relationship model adds more overhead to the supplier, in addition to the data exchange between the two parties.
Properly implemented and managed, VMI can strengthen the relationship between a supplier and a customer, and provide tangible benefits to both parties. However, if not properly implemented, this relationship can cause issues for both parties, driving up costs, causing production downtime (due to a lack of available inventory), and can ultimately damage the relationship.