Vendor-Managed Inventory: Benefits & Drawbacks

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  • 0:01 Vendor-Managed Inventory
  • 0:51 Business Benefits
  • 1:14 Vendor Benefits
  • 1:44 Drawbacks
  • 2:31 Lesson Summary
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Lesson Transcript
Instructor: Yuanxin (Amy) Yang Alcocer

Amy has a master's degree in secondary education and has taught math at a public charter high school.

Some businesses keep their shelves stocked with a vendor-managed inventory. Both businesses and vendors benefit from this arrangement, but things can go wrong. Learn more about the benefits and drawbacks of vendor-managed inventory.

Vendor-Managed Inventory

Imagine that you are the owner of a very large department store in your home town called The Store. You sell everything from batteries to toys to pet stuff. You even sell paint so people can buy paint to paint their homes and other projects. When you first started the business, you were able to keep track of your inventory, and you restocked as needed. But now, your business has grown. It is getting harder and harder to keep track of the thousands of items you have in your store. It is time to switch to vendor-managed inventory. This is when the vendor manages your inventory so you have less to worry about.

With vendor-managed inventory, your vendors keep track of your inventory, and they restock your shelves when needed. You don't have to make the call. What you do need to do is to keep a very open line of communication with your vendors so that they know what items are selling and in what quantity.

Business Benefits

You have decided to go with a vendor-managed inventory system because it provides you with a great benefit. The benefit is that you don't have to worry about running out of items. Your vendors know how much you are selling and how much you have left. Because your vendors can see this information, they can prepare for your upcoming orders. You won't have to worry about making an order with a particular vendor and that vendor saying that it can't fulfill your order right now because it's backlogged.

Vendor Benefits

Not only do you, as the business owner, benefit, but your vendors benefit too. Your vendors benefit because in a vendor-managed inventory system, you and your vendors form a somewhat long-term working relationship. Your vendors can rely on you for continued orders. Your vendors don't have to worry that you will only make one purchase and never call them again. With a vendor-managed inventory in place, the vendors know that they will be receiving more orders when the products sell.

Really, a vendor-managed inventory system is a mutually beneficial system.

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