The inventory is managed by the supplier (2023)

An optimized supply chain can save your company a lot of costs. To get them, you must first understand your inventory: the downside of having a small inventory is that items run out quickly. There is also a very large warehouse in a. The downside is that taking up more space means higher costs for you. One idea for the optimal size of your warehouse is supplier-managed storage. In this article I will explain how it works.

Was the inventory managed by the supplier?

Vendor-managed inventory (VMI) is a logistics strategy that improves supply chain performance. It will also serveInventory controlled by suppliertheSupplier Managed Inventory (SMI)called. With VMI, the supplier can access the customer's inventory and demand data.

The reason for this right of access is that suppliers are concerned about the inventory of their products for their customers. Suppliers calculate inventory using various data, such as consumption or sales figures. In return, they are registered by the supplier themselves or sent by the customer electronically.

A typical use case of VMI is, for example, the supply of consumer goods to a trading company by the manufacturer of these goods. Many companies are already taking advantage of VMI, such as online shopping site Amazon.

Three VMI concepts

VMI is divided into the following three subsections:

1. Classic VMI:With the classic VMI concept, the customer supplies previous sales and consumption data to the supplier. Based on this, the supplier determines the time for the next delivery period.
2. Continuous Replenishment:In another form, the supplier visits the customer at certain time intervals. During the visit, the supplier determines the shortage for the next delivery and delivers this quantity.
3. Delivery warehouse:In the case of consignment stock, the supplier is co-owner of the customer's stock. He is responsible for the warehouse and, if necessary, stores it himself.

The processes for these concepts are carried out electronicallyBusiness-to-Business Markets (B2B marketplaces)is shown. Businesses can trade with each other through such markets to sell or buy products or services.

How can inventory be analyzed?

For VMI, forecasts of future inventory levels are important so that suppliers always know when to stock which items. One of the ways to analyze stocks is thisABC-analyse. This allows you to find out how the demand for a product changes over a period of time and you can accordingly forward a forecast to your supplier.

For ABC analysis, you must first group your products into three categories:

1. Category A:Here are the best-selling products that take up the least storage space and prices. They make up about 20% of your inventory.
2. Class B:In the next category are items that sell as well as A products but are more expensive to store. About 40% of your inventory is in this category.
3. Category C:C items are the remaining items, which also make up about 40% of your inventory.

Advantages of supplier management inventory

Inventory management according to the VMI principle can provide many advantages for suppliers and customers. First, suppliers can respond quickly to small fluctuations in demand because they are always informed about the state of demand. As a result, the suppliers' customers have the advantage that products now rarely run out. In addition, the supplier takes more responsibility and has greater freedom to plan the delivery.

Retailers on the other hand (or buyers of suppliers) have less inventory and therefore benefit not only from space but also from cost savings. Since customers always receive the correct product number, fewer products are returned. Suppliers therefore benefit from transport optimization.

VMI can be used particularly profitably under the following conditions:

• The customer service represents a large percentage of the supplier's sales.
• The supplier delivers standardized products that the customer continuously demands.
• The demand for products is always roughly the same - ideally there should be no spontaneous needs.
• High processing costs for order processing and production planning.

What are the challenges?

Although vendor-managed inventory offers many benefits, it also presents several challenges. First of all, companies are at great risk when they share sensitive data such as incoming orders with other companies. Therefore, both parties must have a high degree of trust in the other party in order to make a proper analysis.

You can strengthen this trust by focusing on the contractual provisions. With them, both parties can register who can access which data in which way and for which purpose.

Also, the investment cost of VMI is quite high, but you will get it back quickly if you are successful.

However, VMI cannot be used for all types of collection, so it cannot be used for all businesses. A prerequisite is a fairly stable demand for products.

VMI proces flow

The process flow between buyer and supplier is as follows:

1. First, the customer submits their inventory and sales data for a specific productEDIto the supplier. Sale dates are historical or already predicted.
2. The supplier receives this data in its system.
3. If the customer has sent historical data, the supplier creates a forecast. Otherwise, it is based on the customer's predicted values. Based on this data, the supplier plans the next deliveries. Sends sales order information to the customer via EDI.
4. The received confirmation of the supplier's order is processed in the customer's system and converted into an order.
5. In the last step of the process, the order number from the user system is entered as a reference to the relevant customer order, so that the order can be accessed in case of problems.

conclusion

With optimized inventory, you can make your supply chain efficient and not only save space, but also costs. With VMI, suppliers are responsible for inventory levels and place orders themselves based on forecast data. The customer can determine this themselves or forward inventory and sales data to the supplier, who then analyzes it and uses the data to make predictions. The advantage of VMI is that the necessary data is transmitted electronically and many processes can be automated, which means that both parties can benefit from increased efficiency.

Questions

Was the inventory managed by the supplier?

Supplier managed inventory describes a concept that uses a logical strategy to optimally size inventory and thus improve performance in the supply chain. A typical example is the manufacturer's sale of consumer goods to a trading company.

How does the supplier board inventory work?

VMI gives the supplier access to inventory and demand data. These are e.g. B. calculated with consumption or sales data. In this way, the supplier has a constant overview of stock status and needs.

What types of vendor managed inventory are there?

There is a difference between classic VMI (the customer forwards sales and consumption data to the supplier), ongoing replenishment (the supplier visits the customer and identifies deficiencies) and consignment list (the supplier is a co-owner of the customer's warehouse).

What are the benefits of vendor managed inventory?

On the one hand, inventory management allows suppliers to respond more quickly to fluctuations in demand, meaning customers are rarely left behind. In addition, users benefit from optimized inventory in the form of space and cost savings.