7 signs you need a Vendor-Managed Inventory (VMI) for your packaging

Does your business frequently – or occasionally – run out of stock of packaging? Do you find yourself doing lots of manual stock counting? Do you even know how much packaging there is at your business?

Maybe you wish someone would take care of your packaging inventory for you?

If any of this sounds familiar, then the chances are that your business would benefit from implementing a vendor-managed inventory (VMI) for your packaging.

Seven tell-tale signs show that your business could significantly improve performance and efficiency (and usually costs) by using a managed inventory service. This guide highlights these signs, helping you to decide if you should implement a service of this type at your warehouse.

Firstly, it can help reduce the storage space required for packaging at your business. This saving can result in reduced warehousing costs and potentially free up valuable space for other items (or even to expand production capacity).

Secondly, it allows for corrugated packaging, in particular, to be supplied on much shorter lead times, making you more flexible in terms of meeting peaks in demand.

And finally, with your packaging supplier fully managing your inventory, it allows them to take care of forecasting, efficient production cycles and managing obsolescence.

Reduced admin and paperwork complement these other benefits and make your packaging supply more streamlined and slick.

But surely these benefits would make a vendor-managed inventory suitable for any business?

Well, yes, it would.

But whilst there is a strong argument for any business that uses a certain level of packaging to consider moving to a VMI agreement, there are several issues that businesses can experience, which you can only alleviate by using a service of this nature.

So without further ado, here are the seven signs you need a vendor-managed inventory (VMI) for your packaging:

• You frequently run out of stock.
• You have discrepancies between the packaging purchased and used.
• You don’t know how much packaging you have (or use).
• You do too much manual counting of packaging stocks.
• You overstock (as you can’t forecast your requirements).
• You struggle to – or can’t – meet peaks in demand.
• You always seem to be lacking in space.
• You consistently have to throw packaging away (as it is dirty, damaged or obsolete)

The remainder of this guide provides further insight into identifying if your business is affected by any of these (it is not always obvious) and how using a VMI can help.

Running out of packaging can have many consequences, varying in significance.

For example, running out of a specific box may mean you need to halt production – you literally don’t have anywhere to put the finished products. At the other end of the scale, you are likely to be losing out on sales and revenue if you don’t have the proper packaging to ship items.

Running out of certain lines occasionally can arguably be a success in some cases (your sales and marketing is creating demand for your products). However, ensuring this does not lead to missed sales and annoyed customers in the longer term is essential.

If you are not using a VMI and are consistently running out of certain packaging lines, then now may be the time to consider a setup of this type. Your packaging vendor is responsible for stock levels and, holding agreed stock themselves, this allows for shorter lead times if you do find yourself lacking.

When conducting stock checks – either those performed regularly or larger, year-end audits – do you ensure the amount of packaging purchased tallies with the amount of packaging you have used?

Whilst there may always be some mitigating factors – such as packaging damaged in storage, for example – if there is a significant difference between the figures, then it is likely you have issues tracking and monitoring your packaging stocks.

This issue, in turn, can exacerbate problems of running out of packaging stocks and potentially lead to forecasting issues.

With a vendor-managed inventory, these figures can often be supplied to you by your packaging supplier. Even basic statistics can also help to highlight any potential issues – for example, excess packaging stock being damaged or even stolen (unlikely, but it does happen).

Ultimately, this can help you reduce your business’ costs.

Do you even know how much packaging stock you have? Or how much you use?

If this is the case, you must take advantage of vendor-managed inventory.

As well as your packaging supplier providing you with all these figures, there is the chance that doing so highlights some uncomfortable truths (which you can then work to resolve).

You can see how much working capital you have tied up in your packaging. You can ascertain the slower-moving lines that you can order less frequently. It can highlight the potential for rationalising (effectively combining) similar lines.

It can even help you make an informed decision regarding longer-term and strategic goals for your business, manufacturing processes and even your wider supply chain.

Another sign that you could benefit from a VMI for your packaging is if you spend (or waste) a significant amount of time manually counting your stock.

Whilst this may be useful occasionally if you rely on manual counting for stock checking, forecasting and planning, you are not making efficient use of your time. There is also an increased chance of errors and mistakes creeping into your figures.