February 13, 2023 | Supply Chain
Push-based inventory management or pull-based inventory management have been the two extremes in inventory management that businesses have deployed.
Push-based inventory management replenishes from the supply base and manages inventory based on the demand forecast.
Pull-based inventory management, on the other hand, utilizes consumption to replenish the supply base and manage inventory.
Many large manufacturers are switching to vendor-managed inventory systems to lower the costs associated with inventory holding.
In vendor managed inventory (VMI) process, the supplier manages the inventory at the customer’s location. Either the client (VMI without consignment) or the supplier (VMI with consignment) owns the inventory, but the supplier is responsible for maintaining it.
The VMI can be implemented in different forms including an on-site inventory planner, periodic supplier visits, synergized inventory systems, customer-ordered inventory, and dedicated space for suppliers.
Vendor managed inventory is suitable for industries with high inventory turnover, multiple venues and high demand uncertainty such as retail. Other industries such as oil and gas, manufacturing, and pharmaceuticals are also increasingly adopting VMI practices.
The oil and gas industry is known for its high-risk operations, with the potential for costly downtime and equipment failures. VMI can mitigate these risks by ensuring that the right parts and equipment are at hand. This is especially important for companies operating in remote locations, where logistics can be challenging. By implementing VMI, oil and gas companies can ensure that they have the necessary parts and equipment at hand to minimize downtime and keep operations running smoothly.
For example, Shell’s electronic vendor managed inventory (eVMI) automates inventory management by continuously monitoring its business customer’s fuel supplies, intelligently calculating the order volumes based on the historical usage pattern, and, dispatching new deliveries of fuel.
Manufacturing companies are also constantly looking for ways to improve efficiency and reduce costs. VMI lets them achieve these goals by ensuring they always have the necessary materials and components. This improves production schedules and reduce lead times. Additionally, VMI can help improve inventory accuracy, reducing the risk of stockouts and overstocking.
The pharmaceutical industry is heavily regulated and requires strict inventory management. VMI can ensure companies follow regulations by keeping accurate inventory records and ensuring that the right products are always in stock.
The aviation industry is dependent on the availability of parts and equipment. With VMI, airlines can have the necessary parts and equipment to minimize downtime and keep operations running smoothly.
Lockheed Martin Aeronautics utilizes Supply Network Collaboration (SNC), a web-based collaborative tool to manage its relationships with its suppliers. A supplier can use Supplier Managed Inventory (SMI) to view, forecast and manage inventory levels to meet requirements and reduce shortages.
Retail companies are also constantly looking for ways to improve efficiency and reduce costs. VMI can help them to achieve these goals by ensuring that they always have the necessary products in stock. At Kroger’s Vendor Replenishment Program vendors are provided with specific item details on daily basis. The supplier sends a purchase order back to Kroger with this information after using it to calculate the replenishment quantities for the Kroger distribution centers.
Vendor managed inventory (VMI) has become increasingly popular in oil and gas, manufacturing, pharmaceutical, aviation, and retail industries, given the way they help increase efficiency and reduce costs. VMI can improve inventory accuracy, cut lead times, and reduce instances of downtime.
Learn how GEP helps enterprises with inventory management.
Author: Rameshrao Kapala