9 Benefits of a Vendor Managed Inventory System

Posted by Craig Zoberis

Mar 18, 2016 6:42:13 PM

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Your inventory is the backbone of your business. Not having components and finished goods at the correct place and time puts your OEM company at risk. Yet, many OEMs don’t manage their inventory in the most cost efficient way possible. Fortunately, there’s an easy fix for making sure your inventory doesn’t arrive too late (or too early) to your factory floor: a vendor managed inventory (VMI) strategy. VMI reduces your storage and downtime costs by receiving parts exactly (and only) when they are needed. How does a VMI benefit your OEM’s bottom line? Here are 9 ways:

Benefit #1: Lower Overall Inventory Cost

Excess inventory management and storage is a significant cost for your business. By outsourcing your inventory management to a contract manufacturer, your OEM sheds unnecessary inventory expenses and frees your balance sheet for other important items.

Benefit #2: Smaller Manufacturing Footprint

Floor and shelf space are valuable assets in your production facility, and extra inventory only uses up that space without contributing to immediate income or production needs. Additional storage not only means greater overhead costs, but that space could go toward manufacturing activities for other production floor opportunities.

Benefit #3: Reduced Administrative Costs

When a contract manufacturer handles your inventory system, you spend less time and resources on maintaining purchase records and issuing discrete orders. With fewer administrative hassles and follow-ups on your schedule, a VMI system means you spend more time on product development and product production.

Benefit #4: Increased Sales

A VMI system also allows you to carry an increased breadth of spare parts and products, resulting BLOG_76_PIC_2.jpgin more sales to a wider variety of customers. The savings from a VMI also means lower costs, higher profitability and more time to devote to customer service – and happier customers translates into repeat business.

Benefit #5: More Reliable Delivery

Because a VMI strategy requires close communication (and geographic proximity) between your OEM and a contract manufacturer, delivery of your inventory is more reliable than traditional ordering approaches. VMIs remove the unpredictability from your supply chain and allows you to better serve your customers.

Benefit #6: More Accurate Inventory Management

When a contract manufacturer manages your inventory, they have more precise data and insights for material requirement planning with increased accuracy. This history enables your Production manager to more accurately predict shifts in customer demand.

Benefit #7: Closer Supplier Partnerships

A VMI strategy requires you to work more closely with your contract manufacturer, and that close relationship benefits both of you: You receive a more accurate, on-time delivery of needed parts at a lower cost, while the contract manufacturer can better schedule their people and equipment and offer you the best possible price.

Benefit #8: Better Inventory Quality

Since a VMI strategy requires precise inventory numbers and well-timed shipments, product quality also increases. Rejected materials and parts are replaced immediately, and defunct or dysfunctional products stop monopolizing shelf space or accruing storage costs.

Benefit #9: Fewer Customer Stock-Outs

With full visibility into your true demand, a VMI inventory partner better understands your lead time, product launches and packaging needs, meaning fewer stock-outs when you need a critical part. On the other hand, greater supply chain visibility also means reduced safety stock, so your OEM doesn’t have to pay for extra parts that it won’t end up needing. If your OEM company is serious about decreasing downtime and reducing inventory costs, you need to consider VMI strategy. Not only does a VMI partnership keep your production running smoother, but it takes the hassle of inventory off your hands, so that you’re able to focus on building your OEM business.

Topics: VMI, contract manufacturing