Now that we understand what VMI and its key features are, we are in a better position to study its advantages and disadvantages. The biggest advantage is reduction in costs for both the supplier and the buyer. Most buyers in traditional setting choose to purchase items at the beginning of the month but let inventory size decrease by the end. They however fail to realize that lesser items in inventory can significantly hurt customer service. Due to unpredictable changes in demand for various items, there are various ways in which costs can increased in traditional management systems. For example when demand for a certain item increases, there is a chance that buyers would stock up that product in larger than required quantities. This can often lead to costs increase, as buyers are unable to sell all the items within a given period. Similarly sometimes distributors place orders for items, which are not as much in demand as the buyer has assumed. This can result in cost increase, which can seriously hurt supply chain efficiency and can also prove detrimental to customer service.
To remove these problems, vendor managed inventory system is implemented. This offers both suppliers and buyers with a chance to reduce costs and increase sales. For example, suppliers can increase the frequency of orders keeping in view the demand changes, and this leads to lesser costs and more revenues. On the other hand buyers can leave order issues to the supplier and expect appropriate quantities of required items in the inventory at all times. Suppliers are in a better position to judge demand of products and can thus change the frequency of orders placed on the buyer's behalf.
VMI system is not very easy to implement and this is the reason why its transition from manual to automation resulted in decrease of its popularity. It is important to understand here that though technology has made it easier to pull down data from remote computers, it has nonetheless made implementation a problem. This is because as we discussed above, VMI requires similar formats and software at both ends. A difference in the software or EDI systems can result in data interchange issues that affect the speed of operations. Another problem is the number of customers that a supplier might have and the technology adopted by each. IN most cases it is impossible for supplier to benefit from cost-reduction features of VMI if it has only one customer. Therefore, he would most probably be supplying his services to numerous customers, each one of whom has different needs and different technical facilities available. Therefore implementation of this system can often present various tough challenges to suppliers as well as customers.
"Vendor Managed Inventory Supply Chain." 8 December 2002. Web. 22 April 2019. <https://www.essaytown.com/subjects/paper/vendor-managed-inventory-supply-chain/5164869>.
"Vendor Managed Inventory Supply Chain." Essaytown.com. December 8, 2002. Accessed April 22, 2019.