Vendor-managed inventory (VMI) is often a great solution to ensure your business always has the parts needed to meet production demands. You get to worry less about your supply chain and focus more on taking care of your customers.
But any VMI arrangement requires a strong partnership. Without the right supplier, you won’t gain the advantages of VMI, like streamlined processes, lower costs and faster inventory turnaround. In a worst-case scenario, you’ll have more headaches than managing inventory on your own.
Is VMI the Right Strategy for My Business?
Before you start researching VMI partners, look inside your own organization. Large and medium-sized original equipment manufacturers (OEMs) are usually best suited to gain advantages from VMI. That’s because they’re managing many parts and would benefit from a more organized, streamlined approach to inventory management.
VMI is likely a good fit for your business if you:
- Have a stable demand for products
- Operate a predictable production schedule
- Use 50 to 1,000 SKUs in your assembly process
- Are comfortable sharing data with your partner
How Do I Choose the Right VMI Partner?
Whether you’re considering changing VMI partners or exploring this strategy for the first time, it’s important to do your research when evaluating suppliers. Strong, collaborative relationships are critical to a successful VMI partnership.
Ask the VMI suppliers you’re considering these questions:
1) How will you implement my VMI program?
Your VMI partner needs to get to know your business, so don’t expect a detailed answer here right away. However, they should have a blueprint for implementation to engage key personnel and perform value stream mapping.
2) How do you measure success?
Data is the lifeblood of any VMI program. Your VMI partner should be monitoring key performance indicators (KPIs) such as inventory turnover rate, days of inventory on hand, order fill rate, backorder rate and inventory carrying costs to track success.
3) How will I access the data?
You need easy access to real-time data on the KPIs noted above. A color-coded system (e.g., green, yellow, red) provides clear visibility into supply chain health and helps everyone stay informed.
4) How are you going to reduce lead times?
This is one of the biggest benefits of a VMI arrangement – ask for a detailed plan on managing inventory levels so you always have the materials you need. The best VMI partners keep your supply chain full to eliminate delays.
5) How will you minimize inventory carrying costs?
Your VMI partner should be analyzing your data to optimize inventory levels so that you have enough material for immediate use without carrying excess stock. This frees up capital for other investments while eliminating wasted space, storage costs and financing expenses.
6) How is this going to lower my labor costs?
VMI should eliminate or reduce manual tasks associated with traditional inventory management. You won’t have to handle logistics and administrative duties. Based on working with similar-sized businesses, any partner you’re considering should be able to estimate what you’ll save in time and labor.
7) How will you limit the risk of stockouts?
A good VMI partner is continually monitoring inventory levels and setting alerts in its ERP system for critical parts to prevent stockouts. They should also analyze consumption patterns and address any issues before they disrupt your production.
8) How do you ensure quality?
Look for a VMI partner that is ISO 9001-2015 certified at its manufacturing and distribution facilities. This is a good sign that the facilities are organized for optimal efficiency and that employees follow proper procedures to deliver safe, quality products.
9) How will you work with my team?
You want regular communication and a dedicated point of contact. A VMI partnership only works if both parties trust each other and are committed to honest and transparent conversations.
Make the Most of VMI
If VMI makes sense for your business, invest the time to find the right partner to help you manage the many moving pieces. It’s one of the best ways to maximize uptime and lower your total cost of ownership (TCO).
Birmingham Fastener Managed Inventory (BFMI) offers more than 1 million square feet of space for all your inventory needs. See how our customized VMI services can help you get a better grip on inventory management.
03/29/2021
