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Key Advantages of a Vendor Managed Inventory Solution

December 21, 2018

Vendor Managed Inventory (VMI) can be a boon to a company’s bottom line if you are aware of all the benefits involved. There is a wide range of VMI solutions, from simple bi-weekly walkthroughs to check stock packaging levels to blanket POs managed and transacted via electronic data interchange (EDI).  In this post, we want to share how companies can gain significant advantages using an inventory management system through third party vendors, such as Orora.

For most products, whether consumer goods or manufacturing parts, success means ensuring you have the right product on the shelf at the right time. But how do you ensure you have the right inventory levels consistently day in and day out? By keeping inventory high? This can be a costly option. If you have too much inventory, you risk having unused, unprocessed inventory that is subject to perishability, safety and quality controls or obsolescence, in addition to storage costs.

If there is too little inventory, you risk not having product on the shelf and losing market share, incurring increased costs for expedited shipping or having your entire production line come to a halt. That’s where the benefits of inventory management come in. Let’s look at some of the advantages of creating a VMI solution in your company.

Standardization and consolidation of materials

Often companies have sites throughout the country that order very similar products, but they order from a variety of vendors, with a multitude of part numbers and so, at a national level, it is difficult and time consuming to truly understand what the organization is buying.

Working with a global scale VMI solutions provider, like Orora, with over 100 locations throughout North America, Europe and Asia, the company has the capability to source and/or manufacture the same item for all of their locations to ensure all sites are using the same materials, for similar costs. This is a tremendous advantage for companies trying to plan forecasting and conduct demand planning.

Improved productivity

Establishing a VMI system results in efficiency improvements in a company’s supply chain, production, and supplier relations. A VMI arrangement will allow a company to schedule its operations more productively because it is now monitoring its customer’s inventory on a regular basis.

When you have a VMI in place, your supplier will keep a stock of the parts you need ready to go, which can reduce your lead times significantly, allowing production to stay on track, as well as helping you deal with sudden boosts in demand.

VMI helps you plan and prepare inventory to avoid shortages or oversupply. With VMI, businesses have a clear understanding of how to properly manage inventory even during unforeseen events that could affect the supply chain.  This creates more efficiency in the warehouse and can reduce labor costs.

Ability to focus on what you do best

A significant advantage to creating a VMI program is that it can reduce labor-intensive tasks. There are many time consuming tasks such as sourcing, ordering, receiving, inspecting, stocking, etc. that take up copious amounts of time when running operations for larger manufacturing facilities. With one company managing all of these tasks, you leave much more time to allow your managers to do what is important in the day to day running of the business.

By employing a VMI system, a company can reduce the investment needed in their operations and logistics infrastructure, and spend their valuable time focusing on growing their business. Businesses can allocate resources to tackle customer needs and leave the operational challenges to the experts, like Orora.

Optimization of your supply chain

Allowing vendors to manage inventory reduces the number of layers in the supply chain, increases stock visibility and reduces overall inventory levels. With VMI, forecasting and demand planning becomes easier because of the clear view of inventory across all locations. This in turn increases the company’s ability to order supplies needed at the time they are needed so manufacturing inventory doesn’t sit in a warehouse. Your entire supply chain benefits by having lower inventory levels, less overhead, increased sales and reduced human data entry errors.

Having one entity managing the supply chain for a company means you have greater control over the process, especially when using EDI. Frequent communication of inventory, stock outs, and planned promotions through EDI facilitate the kind of communications that keep managers aware of what’s going on in their supply chain.

Easy adherence to supplier requirements

When big box retailers or third party vendors require a company to adhere to their particular predefined requirements, companies can find it difficult to get all of their offices, warehouses, distribution centers, etc. to adhere to the requirements because there are so many locations and people involved.

A VMI provider, like Orora, can help companies work with their suppliers in standardizing the materials they will allow their suppliers to use and purchase. This often means consolidating many similar items into buying just one item from one vendor.

With a VMI solution, the vendor can put together a set of standard operating procedures and disseminate the procedures and packaging to all of the company’s supplier locations. Then they can ensure that all of the suppliers and third-party providers are ordering the same products and following the same procedures required by the customer.

To learn more about how your company can benefit from a Vendor Managed Inventory solution, contact us here!