The objective of Tanktel's Vendor Managed Inventory (VMI) is to provide a mutually beneficial relationship where both supplier and end user will be able to more accurately control the flow of product required to maintain uniterrupted production.
With VMI a manufacturer or distributor assumes the role of inventory planning for the customer. Instead of the customer reordering when their supply has been depleted, the supplier is responsible for re-stocking the customer to appropriate levels so the customer can continue operations without interruption.
When a supplier can see a customer is about to exhaust its inventory, the supplier can better prepare to replenish the customer because the supplier can then better schedule its own production/distribution. Customers will reduce/eliminate stockouts because they will not have to reorder goods at the last minute without knowing whether the supplier has the ability to restock without interrupting the customer’s operations. Therefore, part of VMI’s goal is to reduce uncertainty that arises when the supplier is blind to the customer’s inventory status.
As long as the supplier carries out its task of maintaining predetermined inventory and avoiding stockouts, it will be able to lock in a VMI-supported customer for the long term with or without a contract. This will produce a steady and predictable flow of income for the supplier and reduce the risk that the customer will switch suppliers (Switching would be too costly for the customer). A VMI arrangement will allow the supplier to schedule its operations more productively because it is now monitoring its customer’s inventory on a regular basis. Furthermore, reductions in inventory will be achieved once the supplier develops a better understanding of how the customer uses its goods over the course of a year.
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