Vendor-Managed Inventory Programs: How to Choose the Right KPIs

Posted by
Paul Przyby
SVP, Sales and Marketing

Vendor-managed inventory, or VMI, has become an essential service in global supply chains. In a market environment where “inventory is the new king,” timing, efficiency, and organization have never been more critical.

A vendor-managed inventory program is a supply chain system where a partner manages your inventory for you. But managing inventory isn’t just limited to delivering, stocking, and storing goods. It’s about finding ways to simplify and automate workflows, reduce costs, improve overall supply chain stability, and consistently meet customer demand.

As with any initiative, it’s necessary to monitor and measure the impact of a vendor-managed inventory program. One of the most efficient and effective ways of doing this is with a select number of key performance indicators (KPIs) that are all geared to a program component and tied back to your business objectives.

Inventory Management KPIs to Keep an Eye On

The KPIs associated with your vendor-managed inventory program help you track and make decisions about your stock. These KPIs offer information about turnover, sales, demand, costs, process success, relationships, and more. With an efficient inventory management system being the ultimate goal, consider the following when choosing KPIs:

1. Order Status: At the end of the day, it’s all about the parts. With the order status metric, you can track the real-time status of part orders. Have the parts shipped? Were the parts received? You can ensure what was ordered and what is on your invoice match — and get an exact count of items in stock that you can compare to your inventory database. This metric enables greater transparency and improved accuracy for a vendor-managed inventory program.

2. Inventory Availability and Stockouts: As far as inventory management KPIs go, stockouts are one of the most essential. Stockouts can impact the entire supply chain of your business. This metric sheds light on product availability in your supply chain and enables you to forecast your ability to meet customer demand. A VMI partner can help you optimize your supply chain and find ways to avoid stockout situations and the unnecessary costs that come with them.

3. Program Performance: Overall program performance at the simplest level relates to the quality of your vendor-managed inventory program and relationship with your partner. You want to evaluate things like overall efficiency, the impact on cost, on-time and in-full order delivery, proper forecasting technology, and value-add services.

For example, a quality distributor-managed inventory program can perform engineer value-add work to identify redundancies, eliminate issues with part number proliferation, reduce inventory exposure, and reduce expenses. Successful inventory management is meant to shorten and simplify your supply chain, cut costs, and improve efficiency. Provided you measure and ensure overall performance, you can achieve that.

Order status, stockouts, and program performance are just a few of the KPIs used to measure the impact of vendor-managed inventory programs. Others should be added as your program matures to ensure it’s doing what it can to strengthen an efficient inventory management system.

If you’d like to learn more about what a vendor-managed inventory program can do for your business, the team at Optimas welcomes you to click here and download our whitepaper “Inventory Management Digitization Improves Supply Chain Usefulness.

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