Vendor Managed Inventory vs. Supplier Managed Inventory

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No matter what type of business you have, tracking your inventory and meeting product demand is no easy feat. Demand projections and fluctuating costs contribute to the difficult nature of trying to maintain a steady product supply for your customers. As you look for ways to help combat this situation, you may have come across the terms vendor-managed inventory (VMI) and supplier-managed inventory (SMI).

Vendor and supplier-managed inventory help provide you with an effective and beneficial means of inventory management. With these systems, you rely on the vendor or supplier to provide you with inventory as you need it. Your inventory programs send them the necessary information, and the vendor or supplier can predict when you will need more products. These systems can ultimately help you by lowering your inventory levels and reducing costs.

To better acquaint you with the ideas behind VMI and SMI, let’s take a quick look at what they are and how they are similar and different, plus the benefits of using them.

What Is Vendor Managed Inventory (VMI)?

VMI is a supply chain agreement between you and your vendor where your vendor has control over your inventory decisions. The upstream agent (the vendor) is responsible for the inventory of the downstream agent (your business). Based on the data your vendor receives from your systems, they will determine when and how much of a product you will receive.

Initially, this type of agreement may seem counterintuitive, but VMI makes your inventory supplies the full responsibility of the vendor and shifts the work off of your employees. It becomes the vendor’s duty to ensure they have an agreed-upon amount of stock in their warehouse at all times for when you need it. You will no longer need to worry about excessive overstock amounts to compensate for higher demand.

Since you’d be relinquishing control over your inventory, you might wonder how the system works. You’ll allow the vendor to have access to your sales and in-store inventory, and using this information, the vendor will predict when your inventory is low and send out more products to ensure everything is appropriately stocked.

What Is Supplier Managed Inventory (SMI)?

SMI is the same as VMI — a third party manages your inventory and restocks it as needed, relieving you of making inventory management decisions. Most businesses do not wish to refer to their supplier as a vendor and instead use the term SMI rather than VMI. However, if you break down the etymology of the words “supplier” and “vendor,” the two have slight differences.

The Similarities and Differences Between VMI and SMI

VMI and SMI are the same concepts in practice. They both rely on the vendor or supplier to manage your business’s inventory and provide you with shipments when the time is right.

The only true difference between VMI and SMI is in the name used to describe this portion of the supply chain system. “Vendor” refers to a company that supplies a business with products they’ve received from another company. The vendor purchases a product from a third-party company, and you purchase the same item from the vendor. A supplier, on the other hand, is the source of the product. They produce and sell the product directly to you and other businesses.

In some instances, you can bypass a vendor and purchase straight from the supplier, eliminating the need for additional transportation and costs. Overall, the two terms are interchangeable, and whether you do business with a vendor or supplier is entirely up to you.

What Are the Benefits of VMI and SMI?

While V/SMI may concern you at first due to your decreased involvement, they help reduce process roadblocks and align supplier and customer inventory demands. Here are five benefits of relying on V/SMI systems:

1. Removal of Safety Stock and Lowered Inventory Levels

Without using V/SMI, you must ensure you always have the necessary stock available to meet the demand for your products. You might find yourself wanting to have a set of safety stock as a precaution in situations where you cannot receive more stock in time or you forget to reorder. V/SMI helps reduce your safety stock and lower your inventory levels by ensuring you receive your products before you need them but not too early.

2. Improved Supply and Demand

V/SMI programs interpret your inventory and how it holds up under customer demand. It can register how quickly you sell a product and ship out replacements before you run out. You will always have the necessary inventory to meet demand at all times.

3. Better Data Insights

Because V/SMI relies on your sales and inventory numbers to make educated decisions, you also receive the same information, so you know how well a product is selling. If you find sales numbers lacking, you’ll know which areas need improving. If a product is not selling as well as you’d hoped, you can also decide if you want to discontinue it or promote the product more vigorously.

4. Enhanced Sales and Better Customer Relations

With V/SMI, you won’t have to worry about managing your inventory, which means more time working on sales and improving your relationship with your customers. You won’t have to spend as much time filling out invoices and taking stock of your inventory as you can trust your vendor or supplier to do that job for you. In turn, you can enhance your customer outreach efforts and focus on retaining current consumers or branching out to new audiences.

5. Lower Purchasing-Related Admin Costs

V/SMI can help lower most purchasing-related costs. You will no longer have to worry about making any costly last-minute orders or wasting space on storing a product you don’t have room for. Additionally, V/SMI can lower the number of overall orders placed, streamlining your operations.

Trust SourcePak for All Your Inventory Management Needs

V/SMI may be intimidating at first if you’ve always managed your own products, but as more companies shift to this style of inventory management, they realize the benefits outweigh the initial hesitations. V/SMI saves you time and money and gives you the means to strengthen your relationship with customers and improve your products.
If your business is seeking a V/SMI relationship with an inventory management company, SourcePak has everything you need in one simple and convenient package. We offer customized packaging services to manage all your inventory requirements and can handle Just-in-Time (JIT) delivery, rapid response order and delivery and single-to-multiple site management — plus more. Let SourcePak handle the stress of inventory management so you can enjoy the extra time you have for customers and more pressing work tasks.