In today's world, business is hard to predict and often comes with a competitive environment. Modern inventory management processes and the inventory management software that supports them have risen in importance and popularity by improving storage methods. This gives businesses a competitive edge. Within this category, vendor-managed inventory effectively keeps a business's day-to-day operations running smoothly.
Let's discuss what Vendor managed inventory is, how it is managed and how vendor management inventory software can prove to be useful in this regard.
Top Vendor Management Inventory Software by Inventooly
Vendor-managed inventory systems, also known as supplier-assisted inventory replenishment or continuous replenishment programs, help fulfill orders and streamline the overall inventory management process for a business.
In this type of system, data is shared by both parties to help achieve better order accuracy. However, vendors are entitled to the opportunity to inform and educate employees and associates about their inventory and its use.
Selecting vendor management inventory software with the best suitable features can be overwhelming for a business. This can be even more daunting when you have never used a particular solution before. We have curated a list of common features for a VMI solution to ease the process. Other than these, you can look for other capabilities that specifically match the requirements of your business.
- Demand Forecasting
Forecasting the right demand for goods is one of the imperative capabilities that VMI solutions offer. They help forecast demand for products to be manufactured or assembled and shipped efficiently.
It coordinates the data of individual units from various businesses that make up your customer base and facilitates supply chain planning that is backed up by insights. The software also helps figure out any non-performing stock-keeping units and avoid overstocking goods in the warehouse or retail outlet.
- Inventory Management
You can effectively track information for the products that your business stores, purchases, manufactures, or sells. The software also facilitates accurate pricing and helps maintain optimum stock levels at all times. A good vendor-managed inventory system should include serial and lot tracking capabilities too.
- Data Exchange
VMI solutions support easy data and document exchange from one device to another within a company or between clients, customers and business partners. This may include custom and tax information, inventory documents, purchase orders and receipts, shipping and order status, and more.
- E-Commerce Integration
You can select a VMI solution that integrates with major web stores, shopping carts, and e-commerce platforms. This will help streamline inventory levels, payment options, including cash and digital, and shipping modes and options. Businesses can use the solution to manage all products that are sold via a designated e-commerce store using warehouse management software or any stock control solution.
Primary Benefits of vendor management inventory software
Vendor management inventory software benefits businesses by streamlining every segment of their supply chains while enhancing overall financial performance. This inventory system brings together customers and vendors to build and maintain strategic relationships by putting vendors in charge of a customer's inventory management. Here are some of the other benefits of vendor-managed inventory that can help you decide if you should adopt this inventory management strategy.
- Enhanced Inventory Alignment With Buyer Demand
Since the supplier is in charge of replenishing the customer's inventory, they can dynamically adjust stock levels according to the customer's needs. This smooths the demand variability curve, which can lead to better-coordinated buyer lead times.
The VMI system also makes the overall supply chain more responsive to new initiatives, special promotions, and seasonal changes. Additionally, inventory suppliers need to carry a lean inventory of finished goods. According to one study, reducing stock-outs and overstocks can decrease overall inventory costs by up to 10%. VMI handles this issue by helping decrease the cost of carrying inventory, reducing disruptions due to stock-outs, and more.
- Improved Business Performance
The benefits of VMI systems can be seen even outside the warehouse. For instance, having a good understanding of the demand for a certain product enables sales professionals to adjust their efforts accordingly, resulting in improved sales.
- Better Customer Collaboration
Customer-supplier cooperation is essential for vendor-managed inventory software to function properly. Suppliers who've adopted such a system for their business often see improved relationships with their customers. Stronger customer relationships give companies a competitive advantage over others since they can better support on-time deliveries and offer superior customer service. Customers can leverage their supplier's vendor management program to fetch better results related to special programs as well.
- Reduced Costs
Vendor-managed inventory models let organizations cut unnecessary costs by eliminating the need to pile up overstocked items. Additionally, VMI software mitigates the massive cost of accruing unsold inventory. Another way inventory management systems help lower costs is by decreasing or eliminating stock shortage risks. Lastly, vendor-managed inventory enables customers to place bulk orders with their vendors to secure better volume discounts.
- More Sales
Over time, as the vendor is able to understand and predict customer demand through VMI, partnerships can improve between both parties. An active platform ensures that goods are adequately available in stock and for purchase. Product availability further boosts customer service quality and creates improved brand loyalty. This results in more returning buyers and even better sales in the future.
What is Vendor Managed Inventory (VMI)?
Owners and managers are always trying to access and analyze the right volume of inventory they need to stock up on so that they maintain the right balance of products. Inventory levels directly correlate with the ability of businesses to ship orders on time, which is critical in today's environment. Statistics reveal that nearly 34% of businesses have accidentally sold out-of-stock items, leading to late orders.
In a traditional business model, product buyers are responsible for deciding inventory volume and the time when an order should be placed. A vendor-managed inventory model shifts this responsibility from the buyer to the supplier of goods. In some cases, third-party logistic vendors may also have the responsibility of maintaining adequate inventory levels on the buyer's end.
Is Vendor Managed inventory good?
To help you understand how vendor-managed inventory can fit into your operations, we'll explore its benefits and drawbacks, look at situations where this method works best for businesses, and discuss what you need to do to get started with this type of system.
Vendor-managed inventory is a system of inventory management wherein a manufacturer, who is also a supplier, takes up the responsibility of optimizing the distributor's inventory stocks. It is a B2B (business-to-business) strategy that enhances the supplier-distributor relationship and collaboration, helping both parties align their objectives for optimized operations.
In a traditional business setup, buyers or distribution partners order goods and inventory from suppliers, deciding for themselves what, when, and how they want to order. Vendor-managed inventory disrupts this conventional process by empowering sellers and inventory suppliers to share order recommendations with buyers.
A retailer shares all inventory-related data with the designated vendor to run this vendor-managed inventory strategy. This facilitates the vendor or the supplier in deciding the right order size for the retailer or buyer. The vendor takes care of the ordering cost in this setup, and the retailer handles the holding cost. The vendor also takes up the responsibility of making sure that a pre-decided inventory is available with the buyer at their location.
Limitations of vendor management inventory software
So far, vendor management inventory software may look like an all-sunshine-and-no-rain business model. However, in reality, it does have a few drawbacks. Generally, no inventory management model is perfect. Each one has its own advantages and disadvantages that may vary depending upon the size, type, and complexity of the business model it serves. Here are some of the most significant obstacles or drawbacks that vendors commonly face:
- Poor Supplier Delivery
When a business chooses to adopt VMI, the responsibility to deliver inventory on time and at adequate levels is placed on the shoulders of the vendor. It's possible that a supplier may not have enough expertise, proper infrastructure, or the right software to provide dependable service. These issues can result in a complete supply chain breakdown.
- Unscrupulous Partners
An unscrupulous vendor may take advantage of the method by sending excessive inventory for their benefit. For instance, a supplier may ship too much inventory at the end of a year so that they can boost sales figures in their financial statements. Although there may be a return policy, the customer must invest unnecessary effort, time, and attention to see the process through. Sensitive information that is shared with the vendor to help make VMI a success also leaves customers in a difficult position if the business relationship fails.
- Market Responsiveness
Customer preference is a highly volatile factor that could make or break your business. The vendor-managed inventory contract should adequately take care of customer preference or market changes. This way, businesses won't be stuck with stocks of inventory that customers don't want. Instead, the vendor should adjust and replace inventory according to customer taste and preference.
We hope that this article has given you a clear picture of what vendor management inventory software is and how it can fit into your business, enabling you to decide whether it would be a useful practice for your purposes. Be wary of the drawbacks or hindrances that may be associated with this inventory management model, and carefully consider how to best set up and manage VMI at your company.
Now that you know all the benefits vendor-managed inventory offers, you can take the next step and look for software that suits your chosen requirements. To simplify the process, it's best to start with a list of products that match the essential requirements of your business operations. You can use our free comparison report to jumpstart your selection.