What Are the Disadvantages of Vendor Managed Inventory Systems?

Vendor managed inventory systems have enjoyed something of a good press of late; after all if it is good enough for major companies such as Walmart, in the US then surely it is without parallel and is the inventory system that all companies should use.

However, there are disadvantages to the vendor managed inventory system. The fact is that no inventory system is perfect, there are lots of advantages and disadvantages according to the type of business that is being run.

Vendor managed inventory systems are simple. The supplier monitors how much stock the buyer has, then the supplier decides how much stock to send the customer, when it will be shipped, what type of stock etc.

This can often mean that there are fewer ‘stock outs’ and that the costs of stock are kept low, because the vendor (seller) effectively controls stock levels. So why isn’t it used absolutely everywhere if it is such a good system and relieves the customer of all the hassle of managing stock levels.

Size of the Buying organization and consumption rates

This may sound glib, but it is true. Take retail for example – if you have thousands of shops and significant buying power suppliers may be able to justify the management cost against the potential reward where the customer is considerably smaller suppliers may be less willing to risk the financial cost against the likely payback.

Trust Is Hard To Earn

When everything goes well within the supply chain, there is no problem with vendor managed inventory systems, but to establish a really trusting relationship takes time. Switching over to VMI does require a certain level of trust on behalf of all parties for example

a) Will the supplier deliver as appropriate

b) Will the customer consume as expected

c) Have the right products been selected

Many organizations start small, with only a certain range of products, this builds trust, which means that in the early days of the VMI, rewards maybe smaller but the process is de-risked. allowing...