Why Use Vendor Managed Inventory (VMI)?

One of the benefits of VMI is that the vendor is responsible for supplying the customer when the items are needed. This removes the need for the customer to have significant safety stock. Lower inventories for the customer can lead to significant cost savings.

The customer also can benefit from reduced purchasing costs. Because the vendor receives data and not purchase orders, the purchasing department has to spend less time on calculating and producing purchase orders. In addition, the need for purchase order corrections and reconciliation is removed which further reduces purchasing costs. Cost saving can also be found in reduced warehouse costs.

Lower inventories can reduce the need for warehouse space and warehouse resources. The manufacturer can gain some benefits from vendor managed inventory as they can gain access to a customers point of sale (POS) data makes their forecasting somewhat easier.

Manufacturers can also work their customers promotional plans into forecasting models, which means enough stock will be available when their promotions are running. As a manufacturer has more visibility to their customers inventory levels, it is easier to ensure that stock-outs will not occur as they can see when items need to be produced.