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Vendor Managed Inventory Benefit Calculator

Work out vendor managed inventory benefit instantly with clear inputs, formula shown and shareable results.

About Vendor Managed Inventory Benefit Calculator

Vendor managed inventory delivers a one-off cash release from lower stock plus two recurring benefits: reduced holding cost on the smaller balance and fewer stockouts because the supplier sees real consumption data. Both must be quantified for the business case to stand up.

Formulas

Cash released

Released = Current inventory value x Expected reduction %

Annual benefit

Benefit = Cash released x Holding cost rate % + Stockout cost saving

Worked example

With the default values below, Vendor Managed Inventory Benefit Calculator returns Total annual benefit of $12,067,200.00. Change any input above and every figure here is recalculated in your browser.

Inputs used

Current inventory value
92,000,000
Expected inventory reduction under VMI
28
Annual holding cost rate
22
Annual reduction in stockout cost
6,400,000

Results

Total annual benefit
$12,067,200.00
One-off cash released
$25,760,000.00
Annual holding cost saving
$5,667,200.00
Stockout cost saving
$6,400,000.00

Step by step

  1. 1Values used
  2. 2Cash released
  3. 3Annual benefit
  4. 4Total annual benefit= 12,067,200.00
  5. 5One-off cash released= 25,760,000.00
  6. 6Annual holding cost saving= 5,667,200.00
  7. 7Stockout cost saving= 6,400,000.00

Assumptions and limits

  • The result is derived only from the 4 inputs listed above. Anything not among them is not part of the calculation.
  • In particular, this calculator does not take inflation or tax into account.
  • Figures are rounded for display to 2 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.

How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.

Frequently Asked Questions

Why does VMI reduce inventory?

Because the supplier replenishes against actual consumption rather than against your forecast, which removes a layer of forecast error and its associated buffer.

What does the supplier get?

Visibility of real demand, which lets them plan production better and hold less of their own finished stock. The gain is genuinely mutual.

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