10 Problems With Vendor Managed Inventory

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Inventory or stock management systems that are managed by the vendor are commonly used to improve inventory control whilst providing efficiencies and cost reduction opportunities. But are there any problems with regard to VMI and is it indeed the Holy Grail or just another inventory system?

1. The first problem relating to VMI is that it is in fact an inventory system and by its very nature that makes it imperfect. To put it bluntly there is no such thing as a ‘perfect’ inventory system or that would be used in each and every business in the world. So it is not perfect and there are flaws within the system, just like any other!
2. VMI is dependent on big business. If you have customers who order infrequently from you and even when they do order, they don’t actually order that much, then a VMI system is probably not going to work successfully. For a VMI system to be effective and cost effective then the customers have to be ordering frequently and in bulk.
3. All the stakeholders who are involved within the process have to be 100% behind it and this can be extremely difficult to achieve in practice. Stakeholders need to be committed and want to make it happen. It takes more than words or lip service to make VMI a success, so it can be destined to failure if each and every stakeholder does not share the ideal of making VMI work.
4. Trust cannot be achieved overnight. For VMI to operate effectively it needs to be built on trust and that is something that will only grow with time, it cannot be bought or acquired; it has to be earned. This means that VMI can take some time to become effective.
5. VMI is often reliant on process and technology. This is fine so long as it is running smoothly but when things go wrong it can be terribly damaging to the VMI operationally. Although technology is now quite reliant it only takes one failure and the trust that has been established breaks down and in addition the supply chain can go into meltdown.
6. Smaller businesses are more likely to find VMI more challenging to deploy, barriers to technology and supplier buy in can prevent an organization from getting off the ground.
7. A VMI system often requires the vendor to make more deliveries of goods, especially if the customer prefers to keep stocks quite low and this can be problematic. A joined up approach between the vendor and the buyer on batch sizes and process can pay dividends in the long run.
8. VMI requires the vendor to take more responsibility overall because they are now responsible for the delivery of items and deciding when the customer needs more goods. This is quite a responsibility and not all vendors are geared up to handling this kind of responsibility, so to some extent, there are some companies for whom VMI is simply in another league.
9. VMI is also dependent on the vendor and the customer being able to work together to accurately determine forecasts for demand in both the long and the short term. Without accurate forecasts, the system will simply implode and be unable to cope with peaks in demand and then the ‘bull whip’ effect takes over and the supply chain becomes more volatile.
10. Ensure you work hard to obtain the trust of the end user – they will feel the sharp end of any problems and difficulties – work hard to include them in the deployment process and establish regular reviews to capture and resolve any issues that arise.