VMI – do the Advantages outweigh the Disadvantages?

We all know that managing your inventory is a constant challenge, especially when dealing with a commodity. Depending on the size, many businesses need to devote a significant amount of time to managing inventory, and making sure you have enough without overstocking.

VMI (Vendor Managed Inventory) seems like a great solution to this issue, at least on the surface. It is offered by most commodity suppliers as a service to their customers. A good VMI system can help your businesses in many ways.

Advantages to VMI:

  • Saves on Labor cost – the supplier will come stock your shelves, saving your business the cost of time and labor.

  • Saves your Purchasing team time – The supplier will inform your purchasing team what they need to order so that production never runs low.

  • Supplier product knowledge allows them to organize parts for your business in an effective manner.

Disadvantages to VMI:

There is mostly just one BIG disadvantage. You are basically giving your supplier a blank check. I mean, the supplier wants to get sales, correct? So, if you allow a salesperson to access your inventory and dictate what gets ordered, would you want that same person (or company) to be getting commission on the sale? Wow, talk about a conflict of interest…

Not to mention that with most VMI systems, the company buying the parts does not even check to see if the correct parts or the correct quantity even arrive into the facility at all! The supplier just puts the parts on the shelf and hands you the invoice.

Now, I know there are a lot of businesses that have very effective VMI programs in place, I wanted to share what I have noticed over the past 20 years in the Fastener Industry.

Fasteners Direct does offer VMI so in a certain sense I am talking against myself, however, I would NEVER let one of my Vendors put a VMI program into my warehouse unless a very well thought out system was in place for verifying what comes in and out. Many times, mistakes are made unintentionally, and with no checking in place you stand lose that money.

I believe in looking out for the customer at all costs, and there have been some scary things that have happened when a loophole like this is left open.

What are your thoughts on VMI? Experiences? I welcome your thoughts and comments below.

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