IoT Business Case: Vendor Managed Inventory

Our next business case paradigm deals with managing inventory and cash flow on behalf of customers. With Vendor Managed Inventory, suppliers own and maintain their products until customers use them, even though the inventory is stored at the customer’s point of consumption. When the customer uses the product,  the vendor charges the customer for the product.

One common way to manage inventory on behalf of a customer was through smart shelves. These shelves are equipped with the ability to measure the type and quantity of what is placed on them. Everything is tagged with an RFID tag, and items are sensed when placed on the shelf as well as when they are taken off the shelf to use.

There are many ways to handle vendor managed inventory.  You can use barcodes, RFID tags or product specific solutions like measuring the flow of liquid product, weight of a bulk product or even measuring the height of a pile for things like salt and grain and coal.

Here are some examples of Vendor Managed Inventory in action:

• Stents or other implantable owned and stocked by the medical device supplier until they are scanned out and used by the hospital.
• Beverage distributors own the liquor or soda until the restaurant/bar pours it.
• Palettes of paint can be stored at hardware stores so they have all the colors they need, but the inventory is owned by the supplier until it is removed.
• Roofing shingles owned by the manufacturer until the contractor brings them to the work site, so they only buy what they need.
• Hotel room minibars charge guests for items that are removed, often this is calculated by weight.

If we tie Vendor Managed Inventory back to the business drivers — 1) Make money, 2) Save money, 3) Legal compliance, and 4) Reputation protection — you can see the advantages for both supplier and customer. The supplier can increase brand loyalty, customer experience and revenue by having their products on-site when the customer needs them and the customer saves by only paying for what they need when they need it. It also provides an effective way to control the inventory — as well as bill or restock only when necessary.

When done effectively, Vendor Managed Inventory can be a beneficial arrangement for suppliers and their customers while creating an optimal experience for the end user as well. At F3, we can help vendors to determine if this is a feasible option and find the appropriate technology to support it.