VMI: the importance of Vendor Managed Inventory in inventory management

Maintaining a proper balance between retail product needs and industry supply remains a major challenge in the production chain.

Therefore, retail must ensure that shelves are stocked correctly, always aiming to avoid shortages or excess products.

After all, shortages are a significant cause of customer loss to competitors, and excess inventory is another factor that causes companies to lose a lot of money due to stagnant, outdated, or near-expiry products.

Thus, the industry must produce in correct quantities that correspond to demand as it arises. This process requires constant and precise monitoring of data.

To avoid these problems, Vendor Managed Inventory (VMI) is essential for any industry and consequently for its final sellers, the customers.

Keep reading this article to fully understand the importance of implementing this service..

 

VMI and its importance

VMI, Vendor Managed Inventory, which stands for Inventory Managed by the Vendor, is an inventory management practice where the supplier is directly responsible for managing and replenishing the customer's inventory.

With this approach, the supplier monitors the customer's inventory levels and makes necessary decisions regarding when and how much to replenish.

This is based on sales and consumption data provided by the customer or accessed directly by the supplier.

 

Understand how it works

Currently, with the advancement of technologies, artificial intelligence provides most of this data to industries. Alongside algorithms from specific programs, tailored to collect, organize, and transmit this information in an organized and rapid manner.

Armed with this data, instead of the store having to request products from the industry, the industry itself will examine inventory turnover data to perform necessary replenishments. Thus, the process of optimizing replenishment becomes easier.

Therefore, one of the greatest benefits of this methodology is eliminating errors that occur during order requests and resolving bottlenecks present in inventory management.

 

The benefits of VMI

There are numerous benefits for both suppliers and customers (final sellers) with the use of VMI. Here are some of them:

 

1. Cost reduction

The customer can reduce costs associated with inventory maintenance, such as storage and control. One of the most labor-intensive activities in a company, which demands a lot of time, concentration, and allows no room for error, is inventory control.

Keeping it organized, with products within their expiry date, and without old items taking up space meant for new or upcoming products, is a task that requires a lot, both in costs and personnel.

 

2. Improvement in Supply Chain efficiency

The supplier can better plan production and delivery, resulting in a more efficient supply chain. By knowing the quantity and how products are selling to the end customer, the supplier can plan accurately, understanding which products to increase or decrease in production based on data received from VMI.

Planning is the best way to act to avoid unpleasant surprises. For example, having to rush production of an item, potentially compromising quality or overloading machines and employees. Or having to stop producing something that was thought to have good sales, but is actually performing poorly and stagnating on shelves.

With the use of VMI, efficiency becomes a constant in your production chain.

 

3. Reduced stockouts

The supplier can ensure that the customer always has the necessary products in stock, reducing the likelihood of stockouts. One of the main reasons customers are lost at a store is due to products not being available at the time of purchase.

When a customer cannot find what they are looking for, they develop the perception that the store does not have, and will not have, any other products they need. By avoiding stockouts, the supplier can consistently meet the customer's product demands.

 

4. Improvement in Supplier-Customer relationship

Close collaboration between these two players in the production chain can lead to a stronger and more reliable relationship between both parties.

Interaction between suppliers and customers is essential for the growth of any industry and commerce, as one cannot exist without the other. With good communication and aligned intentions for mutual development, along with the sharing of sales and inventory information, both sides stand to benefit greatly.

 

How does VMI work?

Data sharing

The first step in VMI is data sharing, where the customer provides detailed information to the supplier regarding their sales and inventory levels. This data can be shared through ERP systems (Enterprise Resource Planning), EDI (Electronic Data Interchange), or or specific VMI platforms, such as Implanta's.

Therefore, the accuracy and timeliness of this data are essential (accuracy). This allows the supplier to have a clear and updated view of the customer's demand and inventory levels, enabling more efficient management. Implanta delivers this customer data to suppliers with utmost accuracy and reliability.

 

Data analysis

Once the supplier receives sales data and current inventory status, they analyze this information to understand customer demand. This analysis involves using forecasting algorithms, trend analyses, and other data analysis tools to identify consumption patterns and seasonality.

With this information, the supplier can predict future demand more accurately, helping to avoid overstock or stockouts and ensuring that the customer has the necessary products at the right time.

Nothing is done based on guesswork or predictions from outdated data or external historical context unrelated to the involved companies. This forms the foundation of Implanta's work, which provides VMI services with precision and accuracy, tailored to each customer.

 

Planning and replenishment

Based on data analysis, the supplier develops a replenishment plan that determines when and how much to replenish the customer's inventory.

This planning is essential to ensure product availability without overloading stock.

The supplier considers factors such as production and delivery lead times , as well as seasonal variations in demand. Efficient planning allows the supplier to align their production and logistics with the customer's needs, optimizing the supply chain.

 

Delivery and control

During the delivery and control phase, the supplier executes the delivery of products according to the replenishment plan and continues to monitor the customer's inventory levels.

Continuous control involves regular collection and analysis of sales and inventory data, adjusting forecasts and replenishment plans as needed.

This interactive process ensures that the company maintains inventory at optimal levels, quickly adapting to changes in demand and minimizing the risk of stockouts or overstock.

 

Key advantages of using VMI

The digitalization of the production chain is essential for optimizing processes and improving service levels. With VMI, the industry not only enhances inventory management but also automates essential calculations that monitor stocks and sales.

Therefore, to maximize the benefits of VMI, such as visibility in management, data integration, and efficient inventory maintenance, it is essential to use technological systems that automate these calculations and provide accurate information on sales and stocks.

Implanta's main expertise lies in the development, implementation, and control of technological systems based on machine learning (artificial intelligence) and algorithms, specifically "trained" for these improvements.

 

The advantages

• The retailer will address shortcomings by sharing the management of their inventory, leveraging industrial process efficiency.
• Reduction of stockouts and overstocks, increasing revenue and margins.
• With a balanced inventory policy, there will be a decrease in stock levels through replenishments based on precise consumption data.
• Once inventory management is automated, there is more time to focus on strategic activities for business growth.
• With products consistently at the right quantity for the end consumer, there is a significant improvement in service levels and customer service quality.

 

How to start implementing VMI

Another key aspect to initiating this process is the trust between partners when establishing Vendor Managed Inventory-based inventory management.

The buyer grants access to their inventory to the distributor, so establishing partnerships with trust and credibility is essential. This ensures that the process will be successful and beneficial for all involved parties.

Therefore, when adopting this type of process, it's important to verify and cultivate partnerships. Establish commitments that ensure the continuity of the production chain without errors and with development for both sides.

If you already know you need VMI in your company and you already have a reliable partnership relationship with your clients, the next step is to find the right company with the expertise and consolidated experience to implement what you need.

For this, you can rely on services provided by Implanta, specializing in strategic, technological, and advanced systems.

Moreover, Implanta will guide you through every step to ensure the best implementation of VMI in your production chain. Contact us now and get all your questions answered by a specialist.