Controlling Risk In Vendor-Managed Inventory Systems

By entering into vendor-managed inventory arrangements with their suppliers, the owners of small businesses can save themselves a significant amount of time. After all, under such arrangements, it’s the suppliers who now determine exactly how many units of particular products to send to a business. This takes this time-consuming task out of the hands of business owners, freeing them to concentrate their energies on income-generating tasks.

But while a vendor-managed inventory arrangement can be a significant time-saver, it also comes with risks. For instance, what happens if a supplier seriously misjudges how many of its vacuum cleaners your store needs on its shelves? What if a vendor sends you 300 of its DVD players for April but you only sell 100? What do you do with all that extra inventory?

It’s a serious problem, one that can cause serious financial losses to small businesses. And in today’s unforgiving economy, when small businesses are shutting their doors on a daily basis, no owner can afford to take even a minor financial hit.

Fortunately, smart business owners can protect themselves when entering into vendor management inventory arrangements. In fact, doing so is a fairly simple process: Business owners need to make sure that their suppliers are responsible for miscalculations and not themselves.

Here’s how this works: Owners and suppliers can reach an agreement that if the suppliers provide a certain number of products that don’t sell, they’ll agree to buy them back at the same cost that the small business owners paid for them. This way, the small business owners aren’t stuck with unsold inventory clogging their shelves, and the suppliers are encouraged to be as precise as possible when sending products to their small-business partners.

Of course, small business owners can’t expect suppliers to always be perfectly correct when sending them products each month. It’s not unusual to have a small number of unsold products left on the shelves after the month ends.

It’s when there are many, many unsold products left behind that a vendor-managed inventory system becomes a problem. And it’s in these cases in which small business owners need a written protection plan signed by their supplier.

Feel free to learn more about small business accounting and inventory methods.

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