Some businesses keep their shelves stocked with a 3rd party vendor to manage their inventory. Both businesses and vendors benefit from this type of arrangement, but things can still go wrong.
today, let us learn more about the benefits and drawbacks of vendor-managed inventory system
Imagine that you are the owner of a very large department store in your home town called The Store. You sell everything from batteries to toys to pet stuff. You even sell paint so people can buy paint to paint their homes and other projects. When you first started the business, you were able to keep track of your inventory, and you restocked as needed. But now, your business has grown. It is getting harder and harder to keep track of the thousands of items you have in your store. It is time to switch to a vendor-managed inventory. This is when the vendor manages your inventory so you have less to worry about.
With vendor-managed inventory, your vendors keep track of your inventory, and they restock your shelves when needed. You don’t have to make the call. What you do need to do is, to keep a very open line of communication with your vendors so that they know what items are selling and in what quantity.
what is the Business Benefits here?
You have decided to go with a vendor-managed inventory system because it provides you with a great benefit. The benefit is that you don’t have to worry about running out of items.
Your vendors know how much you are selling and how much you have left.
Because your vendors can see this information, they can get ready and prepare for your upcoming orders. You won’t have to worry about making an order with a particular vendor and worry that the vendor saying that they can’t fulfill your order right now because it’s backlogged.
as the business owner, Not only do you benefit, but your vendors benefit too.
Your vendors benefit because, in a vendor-managed inventory system, you and your vendors form a long-term working partnership. Your vendors can rely on you for continued orders. Your vendors don’t have to worry that you will only make one-time purchase and never call them again. With a vendor-managed inventory in place, the vendors know that they will be receiving more orders from you when the products sell.
A vendor-managed inventory system is a mutually beneficial system.
so what is the Drawbacks?
both businesses and vendors need to keep the communication lines open. Problems arise when communication is not that open. Businesses need to let the vendors know if they receive an unexpected spike in sales, and vendors need to let businesses know when they receive more orders than normal.
For example, You ran a special sock promotion without telling your sock vendors. Because your sock vendors didn’t know about this promotion, they didn’t check your stock on a daily basis when you are running your sock promotion. The result was that you ran out of socks inventory before your promotion even ended. You lost quite a number of sales because of it. this is a common communication breakdown.
if you are deciding to go into 3rd party managed inventory system, you need to make sure to tell your vendors about all the goings-on promotions at your store so that they know what to keep at eyes on your inventory for you and so they can keep your inventory restocked.
Lesson Summary
What did we learn? A vendor-managed inventory is, the 3rd party vendor that manages all your inventory.
This method of inventory management is beneficial for both the business and the vendors.
The business benefits because its inventory will stay stocked. It doesn’t have to worry about the vendor not being able to fulfill an order.
The vendors know when to send an order as they see your items quantity decreasing. The vendors benefit because they know that they will receive on-going orders when the business sells more of their items.
Problems with this type of vendor-managed inventory occur when communication lines are not kept open. Businesses need to let vendors know about unexpected spikes in sales or special promotions that will create sales spikes.
Vendors need open communication to let businesses know when they have a lot of orders and they can’t fulfill last-minute requests because of the sales spikes.
full video view at :
https://youtu.be/fp55uNhUj2w