Vendor Managed Inventory is another effective method of dealing with volatility in consumer demand. Especially in situations where maintaining a reasonable forecast accuracy is difficult. Well implemented VMI has it various benefits including reduced logistics cost, reduced inventory holding cost at the supplier’s location, synchronised manufacturing activities, and minimal loss of inventory whether by obsolesces or damages as replenishments constantly run smoothly and efficiently.
VMI ensures that the customer continue to have a steady supply of inventory. Implementing VMI though has it challenges, choosing the right customer, here the reputation of the vendor plays a critical role. Contractual agreements and terms based on shared responsibilities between the vendor and the supplier. The nature of products may require that certain government regulation be met for product storage. A clear understanding for breaches in government regulation is essential when implementing VMI strategy.
A systemic approach to inventory cycle counting and stocktake needs to be pre agreed upon and terms of remittance and replenishment needs to be clarified. Establishing a VMI policy may require that vendor and supplier share information on the same platform to ensure that the visibility and the flow of inventory are accessible to all parties real-time. VMI is a strategic supply chain alliance approach with vendors, it needs to be accurately designed developed and implemented especially when there are multiple vendors and the financial cost of inventory is high. While a generic approach or standard can be adopted to applies to all vendors, it is vital that each vendor be engaged in its own merit and circumstances. In this way risks are minimised and benefits are maximised.