In this way, the vendor managed inventory ensures that the stock levels are maintained at all times and the business is never out of stock unintentionally. It also reduces the inventory in the supply chain and henceforth the overall cost of maintaining and keeping the inventory. There are various other advantages associated with this relationship to the vendee. The vendor ensures that the products are displayed in the shop properly and the staff is well informed about the various features of the product line. They also help to clean and organize their product lines for the store.
Shared risk is one of the keys to a successful vendor managed inventory. If the inventory does not sell, the onus is on the supplier to repurchase the product from the retailer. In other cases, it is otherwise. There the product rests in the possession of the retailer but he does not own till the sale takes place. This means that retailers are simply houses and platforms to assist in the sale of the product. This is in return for a pre-determined commission or profit. Scan-based trading is a special form of this commission while VMI is mostly applied and not mandatory to be used.
Bigwigs like Wal Mart have successfully used this model. Some of the oil companies have also used this model. They use gasoline inventories at their service stations that they supply for instance Petrol Soft Corporation. Home Depot uses the same technique with other big suppliers of manufactured goods. These include the likes of Moen, Delta, RIDGID and Paulin.VMI helps trigger a better understanding between both the supplier as well as the manufacturer. This is via its use of Electronic Data Interchange formats, use of EDI software and various other statistical methodologies for forecasting inventory purposes in the supply chain.
The advantages of Vendor Managed Inventory are manifold. It benefits the distributor as well the manufacturer and some advantages are dual. It helps prevent data entry errors.