Business Results of Vendor Managed Inventory

Management Summary

To analyze the business benefits of VMI, we looked at key business indicators before and after VMI for locations that had been using VMI for 1-2 years. Our sample set contained 156 location relationships spread across 21 distributors and 10 suppliers. The average distributor had a little more than 5 locations and was doing about $150,000 per year with each supplier.

Summary Results for These Locations are as Follows:

• 24% average increase in sales
• 25% average increase in inventory turns
• 31% average reduction in stock outs
• 54% of the locations improved both inventory turns and customer service

Typical Benefits of VMI

Why is it better for the supplier to place the orders rather than the distributors ordering themselves? The benefits of VMI result from better information flow. Both distributor and supplier are better able to monitor demand as a result of the distributor’s inventory activity. Lower inventories, better in-stock positions and increased sales are the three biggest benefits associated with VMI. Suppliers benefit from smoother demand and consistent orders. Distributors benefit from reduced administration costs, with the elimination of any need to place, manage or follow-up on orders.