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Complete and accurate information is necessary to set up an effective vendor managed inventory agreement. Customers – whether that customer is a distributor, manufacturer or a retailer – often fail to consider all the costs and savings associated with a VMI program, says inventory expert Jon Schreibfeder. (Read Vendor Managed Inventory Grows.)
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Cost savings begin with the reduction of inventory waste. Companies become more aware of how much usage and waste is actually occurring, which allows them to rein in that waste. But while the costs associated with wasted inventory may go down, the time needed to monitor the data and actual inventory levels may be higher.
At the same time, companies may see time savings in other areas. For companies without VMI agreements, purchasing agents dedicate a lot of time to determining inventory levels for "nuisance items" such as gloves and safety goggles, Schreibfeder says.
The creation of an effective inventory management agreement requires an honest evaluation of where time and money are being spent within your company. A good agreement will result in savings overall for both the vendor and the customer.
