Top 16 Ways Vendor-Managed Inventory Helps Business Owners
A vendor is a company that sells products or supplies to other businesses. Vendors can receive orders in different formats, such as through specialist software, over the phone or via email. Purchase orders are commonly used to place orders with vendors. A purchase order needs to contain details, like the description of the items, the price, quantity, and shipping information.
What is vendor managed inventory?
Vendor managed inventory is when a business owner provides details to a vendor so they can assume responsibility for managing and maintaining inventory on behalf of the business. Vendor managed inventory can be used by business owners irrespective of the business size. Large retailers, like Walmart, use vendor managed inventory to keep their shelves stocked. When an item gets to a specific reorder point, the vendor manages the restocking needs by delivering more products. Vendor managed inventory removes the need for business owners to create purchase orders when inventory is running low.
Vendor managed inventory can take place in different forms, including:
- A vendor visits the business owner’s company, assesses the inventory and physically replenishes the inventory that’s running low.
- A vendor physically visits the business owner’s company and makes a note of the products that are running low. The vendor orders the inventory to be delivered on a specific date.
- The business owner gives the vendor an update about inventory levels. The vendor initiates a replenishment order, which is shipped to the business.
- The vendor is able to access the business inventory system directly, to get real-time information about inventory levels.
- The vendor makes a decision about whether the business requires more inventory and ships the items, if necessary. In this instance, the vendor gets electronic information about business stock and sales levels. The vendor can see the entire inventory the business carries through a point of sale. The inventory plan is maintained by the vendor, which includes the responsibility for shipping items according to agreed stock levels.
As you can see, vendor managed inventory has the potential to greatly help business owners in the running of their business when done correctly. But even if you have the best possible vendor managed inventory systems in place for your business, it all means nothing if your managers are spending all their time creating employee schedules when they should be focusing on bettering the business. If creating your employee schedules is taking up hours each week and leaving you with no extra time to tackle other tasks, then take a look at the features offered by Deputy. An employee scheduling software platform built to make creating employee schedules as easy as possible. To see for yourself what Deputy can do for your business, click on the button below to start your free trial. (No credit card required!)
1. Make more sales
Using vendor managed inventory helps you carry more variety in relation to your products and supplies. This provides you with the opportunity to make more sales to more customers. Vendor managed inventory saves you time, which you can dedicate to providing better customer service, which will translate to more sales.
2. Less stock-outs
The chances of you running out of stock are rare when using vendor managed inventory. This is because you do not need to worry about under-purchasing to prevent carrying excess stock. Vendor managed inventory helps business owners strike the delicate balance between stocking excess inventory and missing sales. With vendor managed inventory, you can receive the amount of items you need before your stock runs out. If the vendor uses a system that provides visibility of your products, they will have a good understanding of your lead times and other critical information to keep your business fully stocked.
3. Lower inventory storage costs
Holding too much inventory can have a negative impact on your business. Using vendor managed inventory saves you money on storage costs. Although storing inventory may be part of your fixed costs, which you have budgeted for, you could still use the space for another purpose. If you decide to stop storing inventory, you can rent your storage space to another company, which would provide an additional revenue stream to your business. Using vendor managed inventory means you reduce the fixed costs associated with storing inventory.
4. Secure supply chain
Your business is linked to all the other companies in a supply chain. Therefore, if something goes wrong, all the companies can be negatively impacted. An example is where a vendor needs to concentrate on one customer because a very large last minute order has been received. This could end up affecting your business if the shipment of your product is delayed because of the vendor’s shift in priorities.
Vendor managed inventory helps to provide a more stable supply chain because the vendor is aware of the products that are required by your business in advance. Vendor managed inventory will help you minimize the risk of being affected by what happens with other businesses in the supply chain.
5. More precise inventory management
When a vendor manages your inventory, they are focused on using data to ensure they supply the correct number of products you need. Your vendor should be able to analyze the data to forecast changes in customer demands. This aspect of vendor management is of particular importance if you operate a business that’s subject to seasonal fluctuations.
6. Better use of capital
The amount of capital you need upfront to buy inventory can cause strain on your business finances. Better management of capital is one of the main reasons businesses use vendor management inventory. Vendors generally secure a large amount of inventory in anticipation of orders coming in.
If your business is in a competitive market, you will be in a stronger position to negotiate better pricing because the vendor needs to secure your business.
7. Access to niche products
If your business deals with unique and niche products, vendor managed inventory may help you access the products you need, at a competitive price. Where your products are difficult to source, it is important to maintain a good relationship with your vendor. Entering into a vendor management inventory relationship will let the vendor know you’re committed to doing business with them. As a result, you are more likely to obtain a better deal on the price of your products.
8. Less administrative costs
Using a vendor management inventory strategy helps your business reduce administrative costs. This is because you will need to spend fewer resources and less time creating, maintaining and managing purchase orders. Therefore, you will be able to devote more time to different parts of your business. You could also save on the cost associated with hiring administrative employees to deal with purchase orders and other inventory related tasks.
9. Additional investment opportunities
When you decide to store your inventory, your business may be losing money. This is because the inventory is not making you money when the products are not being displayed. This means you’re missing out on opportunities to utilize the money that is tied up in your inventory to improve your business.
You can free up the capital used to store inventory to make investments that produce healthy returns for your business. Using vendor management inventory can help you save on inventory costs so you can divert these savings to other activities that will grow your business.
10. Better delivery of products
A successful vendor management inventory partnership requires a high level of communication between you and the vendor. The vendor you choose should have supplies close to your business or have the necessary infrastructure to get your products to you in an acceptable time frame. Vendor management inventory helps to make the supply chain more reliable so you have access to your products when you need it.
11. Enhanced customer experience
A vendor management inventory relationship helps your business always be stocked with the right amount of products. This not only saves you money but also increases customer satisfaction levels. Customers expect to be able to get a hold of products when they want them. Informing customers an item is out of stock will ensure they end up at one of your competitors. It is likely this one bad experience will deter your customer from returning to your business. Vendor management inventory helps your business be seen as reliable and trustworthy. Therefore, customers are more likely to give you their repeat business.
12. Better product knowledge
Consumers are becoming increasingly concerned about the origins of their products. According to Nielsen, millennials are willing to pay more for products from businesses that care about social change and the environment. It is not unusual for purchasing decisions to be made about factors relating to how and where products were sourced and whether manufacturers pay a living wage to their employees.
A good vendor managed inventory relationship will provide the answers to these questions. You will then be able to reassure your customers about different aspects of your products. This transparent approach could have a positive effect on your bottom line if your products are ethically sourced or make a good impact on the environment.
13. Enhanced inventory quality
Given that precise inventory numbers are used in vendor managed inventory and shipments are timed accurately, this can result in your products being of a higher quality. Your business can reject defective products straight away without the need for them to take up valuable space in your business.
14. Closer relationship with your vendor
Entering into a vendor managed inventory relationship means you have to work closely with your vendor. Both you and your vendor will benefit from this close relationship because you will get accurate deliveries on time as well as lower costs. There will be a requirement to link some of your business processes and your technology platforms to the vendor. A close working partnership with your vendor can help your business to come up with original and innovative solutions for your consumers. Working in close partnership through a vendor managed inventory relationship benefits your business as well as your customers.
15. Savings on insurance and taxes
Your inventory is a business asset that needs to be protected through insurance. The more inventory you have in storage, the more you will need to pay in insurance premiums. Your inventory may also be subject to tax. Both your insurance and tax costs vary according to the amount of inventory you hold.
Therefore, using vendor managed inventory ensures you have no (or a small amount) of inventory in storage so your inventory and tax payments will be lower.
16. Higher level of accuracy
Without vendor managed inventory, you need to forecast the amount of inventory required for your business. Using your POS can make this task easier, however, it’s likely that a vendor will have access to more sophisticated technology that takes into account a number of factors when making forecasts about the number of products your business requires.
Vendor managed inventory can help your business in many different ways. Entering into a vendor managed relationship can have a positive impact on your cash flow, employees, and your customers.
As you have seen from the benefits above, vendor managed inventory helps you run a more efficient business. Extend this efficiency to the management of your hourly employees by using Deputy to schedule your staff. Deputy is used by over 90,000 businesses to provide simple, easy-to-use scheduling to avoid overstaffing and understaffing. Click the link below for a free trial (no credit card required!) so you can see first hand how Deputy can help you manage your hourly employees.
The information contained in this article is general in nature and you should consider whether the information is appropriate to your needs. Legal and other matters referred to in this article are of a general nature only and are based on Deputy's interpretation of laws existing at the time and should not be relied on in place of professional advice. Deputy is not responsible for the content of any site owned by a third party that may be linked to this article and no warranty is made by us concerning the suitability, accuracy or timeliness of the content of any site that may be linked to this article. Deputy disclaims all liability (except for any liability which by law cannot be excluded) for any error, inaccuracy, or omission from the information contained in this article and any loss or damage suffered by any person directly or indirectly through relying on this information.