Need for more incorporation of Vendor-managed inventory strategy in modern businesses

“Curiosity kills a cat, but cats be happy, for satisfaction raises the dead”, several organizations, startups and businesses will and are endlessly, curiously and constantly trying to get innovative ways to mitigate risks and be more cost effective, with competition getting astronomically fiercer by the day, every trick to get that extra edge and advantage in the market must be played. Vendor-managed inventory is a strategy that transfers the management of inventories and order processing from the buyer of a product to the supplier of the product, this strategy is not only cost effective, it is both operation effective and mitigates risks by transference, in simple terms this strategy allows vendors or suppliers to own inventories until they are sold by their clients, the vendors in the supplier chain manages their own products in their clients’ warehouses or stores, for example if a business has ten vendors in its supply chain, each of these ten vendors is hence contractually responsible for managing their inventories in the client’s warehouse.

Vendor-managed inventory agreement between a client and its suppliers transfers the inventory routing problem and inventory replenishment decisions away from client to the suppliers, in this way business owner do not have to worry about the delivery of “their products” to customers and when to replenish their warehouses since their supplier are now in charge of that, this strategy is common with supermarkets, malls and the maritime industry but not so much outside these sphere of business. Modern businesses and startups like biotech, Fin-tech, pharmaceuticals, production companies, schools etc. on their holy grail of a quest to achieve maximum efficiency and risk mitigation, should like cats be curious enough to take a cue by incorporating this strategy into their business model and let satisfaction perform its miracle. Incorporation of this strategy will improve quality of the services provided as it ensures that there are no stockouts and products are readily available for use for production firms and/or for customers for retailers as the case may be.

How does this help the vendor you may ask, this strategy helps to reduce the bullwhip effect which is caused by the upward distortion and amplification of customer demands, this effect is removed since they are now in charge of replenishment so they can easily gather better information about aggregate customer demand, it also increases sales, consolidation of freight which leads to the reduction of the total cost of transportation and aggregate production planning thereby improving the profitability of the vendors, not to talk of the stronger business relationship this fosters which also gives them competitive edge over competitors.