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The pros and cons of Vendor Managed Inventory (VMI)
Is it right for you?
With the growing requirements of the chemical industry, as a maintenance manager, balancing demand, data, safety and stock is relentless. Therefore chemical companies are looking for innovative ways to manage, optimise and store inventory, VMI might be the answer.
Here, we will define what Vendor Managed Inventory is, outline VMI advantages and disadvantages and suggest how or when implementation is beneficial to your chemical plant.
What is Vendor Managed Inventory?
Vendor Managed Inventory (VMI) is a system where a trusted supplier is responsible for organising, maintaining and optimising inventory levels for your chemical plant(s). They are accountable in getting the right parts, to the right places at the right time.
What products?
Being a maintenance manager, you know the requirements of your plant better than anyone else. Your VMI supplier will work alongside you to fulfil these requirements. Generally, VMI works best for items of low value, with high, predictable consumption. Items such as bearings, seals, fasteners, gaskets and aerosols.
VMI is a solution to streamline your suppliers and inventory management, whilst increasing stock visibility and reducing stock-outs. Critical parts and bulkier items such as tools or PPE can also be included in a VMI.
Connecting data
Data alignment is a prerequisite to a well-functioning VMI system. Your inventory data is shared with your vendor, and is compared and aligned with other elements of your demand information. This creates the starting point of a centralised VMI database. This VMI process determines optimal inventory levels, systematic stock rotation, and methodical filling requirements to lower overall costs. It may also include part standardization to reduce your inventory further.
The pros and cons of Vendor Managed Inventory
VMI has a vast scope and benefits surpassing just ‘the managing of parts’. Yet, as with any system or solution, vendor managed inventory has both advantages and disadvantages that need to be considered.
Pros
- Streamlined process- remote level sensing technology (via scanners) automates simple and complex ordering processes. Automation reduces internal steps and minimises inefficiencies in how parts are ordered, delivered, stored and replenished.
- Reduced costs- with fewer deliveries and single monthly purchase orders placed with your VMI supplier, you’re able to lower your total cost of ownership (TCO). Using a decreased number of suppliers and stable ordering process; means fewer obsolete items, further reducing waste.
- Enhanced stock visibility- VMI gives all departments higher visibility and understanding of your plants inventory and consumption levels. Stock levels are organised and physically visible and recorded digitally, minimising stock-outs and shortages.
- Improved productivity- VMI alone will not increase productivity but it influences positive workflow output. Your supplier will assess your current workflow from receipt of delivery, distribution of goods and storage to find ways to minimise steps, saving you time and money.
- Valued partnership- your supplier will value and uphold the trust within the partnership, focusing on efficiency and profitability for you and your plant. Technical experts are at hand to offer support, assure delivery and continually enhance operations.
- Efficiency- Having a VMI means having a logically and well maintained warehouse. Parts are easily found by your mechanics, saving them time and further reducing downtime. Optimisation through data alignment and part standardization, also allows for any change in process for technical alternatives
Cons
- Sharing data- Correct and current data is essential for VMI implementation. Relinquishing control of company data can feel uncomfortable, yet it’s necessary to manage inventory levels appropriately. Your supplier will handle data efficiently and transparently, remaining accessible to you at all times.
- Space needed- Sufficient warehouse space is needed to implement VMI. Total space required is affected by the number of products you want to include in the VMI
- Value and criticality- Usually, a VMI consist of low value commodity items. However, it is possible to also include high value critical parts. A certain maximum value can be agreed upon to which articles can be added to your VMI.
VMI implementation can be complex, yet brings with it multiple benefits to you, your team and plant. Initial steps require:
- A clear overview of consumption
- Standardisation of parts
- Adjustment to warehouse layout
With a new system, internal processes may have to be adjusted; being labour intensive for both parties. With communication, preparation and expectations set between you and the vendor, it’s a way to streamline your supply chain, reduce costs, increase consumption visibility and reassign staff to more important activities.
VMI - a smart solution to gain control over your inventory when…
Adopting any ‘new’ solution within the chemical industry can feel uncertain. Yet knowing when to enter a VMI agreement can be a smart solution if:
- You experience frequent stock-outs – low stock levels aren’t recorded and orders aren’t being placed in time
- You have overstock or obsolete items – orders aren’t documented, resulting in multiple deliveries, surplus stock and obsolete items
- Your stock management system is not centralised – staff are vigilant but information isn’t passed through departments or in shift handover
Evaluate the time and money spent on your inventory management tasks (sourcing, processing and chasing orders) to highlight the benefits of outsourcing to VMI. It is also an element to reduce your TCO. VMI frees up important resources allowing support for the core business.
There are no official minimum requirements for VMI. But to be financially beneficial, items added need to be of high consumption. You need to also address warehouse space, provide current data and decide what products are necessary to include.
If these terms cannot be met, an alternative option may be the use of an app. ERIKS provides an app that allows you to do the scanning yourself to manage, maintain and reorder stock.
Conclusion
ERIKS’ expertise in VMI delivers significant benefits, plus reduces associated costs of administration, stock purchasing, handling and delivery.
VMI leads to improved production performance, delivering what you need exactly when you need it. This results in improved satisfaction, communication, inventory accuracy and forecasting.
To see the value added by a VMI solution, download the DSM case study today and see exactly what VMI could do for you.
Download our DSM case study
Discover in this case study how DSM no longer waste time on searching for replacement parts, increased stock availability and reduced costs.
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