4 Tips for Vendor-Managed Inventory

October 13, 2021

There’s a lot to talk about when discussing vendor-managed inventory. Some of this involves the context of these services and how they work. There’s been a lot of demand for new inventory models in the last few decades. As the relevant technology advanced, people started to think about better ways to handle everything that sits in a warehouse prior to order fulfillment.


That led to the idea that vendor-managed inventory can help: people started to embrace principles like lean inventory and Just-in-Time (JIT) inventory with more of an on-demand model. Vendor-managed inventory, in a way, grew out of that.


What Is Vendor-Managed Inventory?

In vendor-managed inventory, which is a B2B process, a manufacturer who is a supplier will handle inventory data for a distributor partner. That means the distributor gets the information directly from the source, and the two parties collaborate on better inventory models.


Vendor-managed inventory processes are widely popular across many different industries. Some of the best examples involve discrete manufacturing where products like cars, computers, or individual consumer items are mass-produced, shipped, and delivered to end customers through a complex supply chain process.


Here, in these types of collaborations, vendor-managed inventory makes it possible to optimize how these products make their way to their final destinations. This type of process is often used by distributors or third parties who want to benefit from sharing information with manufacturers. They use vendor-managed inventory models because these models are efficient and can help generate better sales over time.


One type of benefit of vendor managed inventory is the ability to generate better demand forecasting. With the data in hand, these companies have more of an idea of what’s likely to be ordered in a given time frame.


Four Tips for Vendor Managed Inventory

If your company is considering a vendor-managed inventory model, here are four quick tips for accomplishing this kind of business partnership.


Choose the right partner – Vendor-managed inventory systems work better when both parties have a shared corporate culture and the same kinds of working philosophies and understand each other in a B2B way.


Establish back channels – Because the companies will be sharing information, it’s a good idea to have point people who are directly working behind the scenes to make sure these communications happen in the right way. Just like with any aspect of a supplier relationship, being able to get someone on the phone when you need to is a big advantage.


Brainstorm product goals – These systems involve new ways of handling inventory, so there’s an opportunity for both partners to sit down and discuss optimizations that will improve both of their supply chains in a symbiotic way. The old saying “two heads are better than one” really applies here.


Think like a customer – Vendor-managed inventory is not a magic bullet and doesn’t eliminate the need for customer relationship management tools or anything else that’s customer-facing.


In conclusion, vendor managed inventory can be an excellent strategy for not only optimizing inventory but knowing what products are likely to sell in a particular market context. Think about how this type of partnership can help your business.