Your company discovers it is losing money because of two common issues: carrying too much inventory or upsetting customers when stockouts impede order fulfillment. You have a strong relationship with a supplier from whom you receive a significant amount of goods. When you mention your problem, your supplier suggests implementing a vendor managed inventory (VMI) system.
From reading the industry news, you know Walmart practices VMI by allowing suppliers to plan the US-based retail giant’s inventory to maintain a consistent availability and replenishment of goods. A quick Internet search reveals the benefits for you: allowing the supplier access to your point-of-sale (POS) data lets your supplier see when to replace your stock as it drops below a predetermined level. You can satisfy customer demand without worrying if the supplier will have what you need and without the costs of rush shipments if you forget to place an order. Your supplier is motivated in the partnership, too, by a smoother planning process for its manufacturing or procurement system and by a steady source of income from the arrangement.
Yet, your research also reveals many VMI partnerships fail. The main reason is communication—that is, a failure to define clear expectations between the partners at the outset or a failure to update expectations as the relationship progresses. Another issue that can cause problems is the failure to share information in a timely manner or to share the most up-to-date data. For example, you know your company sells twice the amount of product in the summer than it does in the winter. If you don’t alert your supplier beforehand about this seasonal upsurge in demand, your VMI partnership could break down.
Overall, however, the benefits of VMI seem to outweigh the pitfalls since you recognize communication is a primary factor for solving problems that arise. You and your supplier have several detailed meetings to clarify expectations, and before long, your revenue stabilizes.
Does your company have inventory issues with which your suppliers might assist? Are you comfortable sharing information with a supplier to achieve a better inventory balance and satisfy customer demand consistently? The Accenture Academy course Analyzing Vendor Managed Inventory (VMI) Relationships
can help you recognize how VMI differs from traditional fulfillment processes, identify how VMI can benefit your company, and determine what factors will help you create a successful VMI partnership with your suppliers.