Customer managed inventory is a way for you to get your inventory in the hands of your customers without you having to physically manage it yourself. It’s less work for you than traditional vendor managed inventory while still offering rapid replenishment for your products.

Key Takeaways

• Customer managed inventory lets customers scan their own inventory and transmit that data to your systems
• Customer managed inventory is much like vendor managed inventory, except customers do the scanning
• With customer managed inventory, customers have more control over their ordering while enabling faster, more accurate replenishment

What Customer Managed Inventory Is and How It Works

With customer managed inventory (CMI), you place your inventory in your customers’ warehouses and let them handle the inventory management. They scan or otherwise automatically monitor inventory items, and then that data is transmitted directly to your system and triggers automatic replenishment as needed. It’s a convenient way for your customers to manage their own parts inventory while still ensuring that you ship them the product they need, when they need it.

A CMI system starts by entering all appropriate items into the system. The customer, with your assistance, then establishes both minimum and maximum inventory ranges for each of the items. Based on this information, you create recommended replenishment levels for each item.

The customer is also supplied with one or more tools that scan barcodes or RFID trackers. With this, customers scan items when they arrive in inventory and again when they’re used or sold. For smaller items, such as fasteners, you may supply customers with weigh-sensing bins to monitor item inventory.

The scanners and sensing devices are connected to the customer’s computer system, which in turn is connected to your inventory management system. The collected data is thus transmitted to your inventory management system via electronic data interchange (EDI) technology. The system is alerted when an item reaches its replenishment level, and a new order is automatically generated for shipment to the customer.

CMI puts the customer in complete control of their own inventory management while still relying on your systems for replenishment. For many customers, it’s a better approach than traditional vendor managed inventory.

How Customer Managed Inventory Compares to Vendor Managed Inventory

Vendor managed inventory (VMI) and CMI work similarly – the difference is in who does the scanning.

Understanding VMI

With traditional VMI, inventory is stored in the customer’s warehouse but managed by your company’s sales reps. The reps visit the customer on a regular basis (typically once a week or so) and, as part of the visit, scan all of your company’s inventory. When transmitted to your inventory management system, this data tells you what items have been received into the customer’s stock and which items have moved out of stock. This information is used to determine what items need to be reordered. 

The following video details how VMI works.

Comparing VMI to CMI

With CMI, the scanning takes place more frequently – when the items actually arrive and are used. Since data is collected in real time, reorders can also be placed sooner, enabling true just-in-time inventory management.

Of course, CMI requires that customers be given an appropriate number of scanning devices (typically paid for by you) and training on how to use those devices. CMI also depends on the customers actually doing the scanning as required. With VMI, the responsibility for scanning inventory is in the hands of your sales reps – which is less work for your customers. 

Both VMI and CMI are highly effective ways to manage inventory. Errors are reduced to a minimal level, everything’s totally paperless, and the regular monitoring results in faster replenishment and improved inventory management. The difference is purely in who does the work of scanning the inventory – the vendor (you) or the customer.

Benefits of Customer Managed Inventory

CMI offers many of the same benefits of VMI, plus a few more. Both systems offer detailed and precise inventory reporting that helps to speed replenishment, but CMI’s benefits extend beyond that.

Benefits for Vendors

As a vendor, you can realize multiple benefits when your customers switch to CMI. These benefits include:

• Reduce sales costs – no need to frequently send sales reps to customer warehouses to scan inventory
• Eliminate customer complaints about “bin stuffing” – they control how much they order and when
• Reduce errors – no more manual entry
• Increase revenues – ease of management results in customers ordering more items, more often

Benefits for Customers

In addition, your customers will realize a number of important benefits from switching to CMI, including:

• Control over ordering – they decide what gets ordered and when
• Flexibility – they can scan inventory whenever it best suits their operation
• Improves order accuracy – everything is recorded via scanning
• Works across multiple stocking locations – different stock rooms, even retail showrooms
• Protects against over-ordering and double ordering – no more guesswork
• Reduces inventory costs – keep less inventory on hand and order more frequently
• Makes your customers true partners – and strengthens long-term relationships

Should Your Company Offer Customer Managed Inventory?

Knowing the benefits that accrue to both you and your customers from CMI, the question remains: Should you offer customer managed inventory to your customers?

The answer to this question is yes if you want to:

• Improve order accuracy and cut down on costly errors
• Enable your customers to carry less inventory
• Give customers more control over their ordering
• Cut down on sales calls
• Reduce your sales and maintenance costs

CMI is also important for those customers and sales reps wary of unnecessary social contact in the post-COVID environment. Reps can do more business over the phone or online, while customers reduce the number of non-employees on their premises. This reason alone is enough for many businesses to switch to customer managed inventory.

Learn More About CMI at the International Fastener Expo

Discover the latest ideas and solutions for your business at the International Fastener Expo. This year’s show takes place September 21-23 at Mandalay Bay in Las Vegas.

Register now for International Fastener Expo 2021 – September 21-23 in Las Vegas!