How does VMI Works

Managed by a vendor Inventory operates by establishing a symbiotic relationship between the two
parties in a transaction, allowing them to share risk and collaborate for mutual profit. The vendor can
monitor and manage the complete supply chain by taking care of a buyer's inventory and supply chain
management. VMI will typically entail controlling all areas of the supply chain, including material
sourcing, market trends, shipping process management, and delivery to the desired destination and
warehouse.

VMI will make sure that the buyer's only concern is the delivery date of the raw material or product to
its final destination. VMI allows for better communication, stock management and inventory accuracy,
forecasting, and overall service because intermediaries are removed, resulting in a service that considers
all components of the supply chain as well as any areas of concern. This allows VMI to reduce the
influence of the bullwhip effect, a phenomena in which the accuracy of client consumption information
decreases as you move up the supply chain (further from the consumer). VMI prevents excessive stock
and inefficiency in the supply chain by retaining consumer behaviour analysis and appropriate stock size
in the hands of the provider.

 The immediate benefit is that the buyer deals with the supply chain as little as possible.
 This reduces workload for the buyer and allows the supplier to take charge of the order size in
addition to the logistics of making the stock available.
 VMI mitigates the risk of becoming out of stock or oversupplied, because it allows increased
transparency and communication.
 It is therefore then possible to incorporate increased replenishment frequency, enabling a faster
reaction to market demand.
 The benefits of this streamlining reduces overall cost for both parties.

Advantages of vendor managed inventory:

• Reduction in carrying costs

• Reduced need for safety stock

• Efficient supply chain management

• Better communication

• Streamlined execution

• Simplicity across the supply chain

• Productivity / cost savings

Disadvantages of vendor managed inventory:

 Loss of control
 Limited options
 Less agile market responsiveness
 Trust is hard to earn
 Reliant on technology