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Vendor managed inventory (VMI): An innovative approach for hotels


Vendor managed inventory is a new model of inventory management in the hotel industry. In this model, the supplier maintains the stock in a hotel as per the standards prescribed. In the case of pre-opening hotels, this is the best method to be adopted as the purchasing managers are involved in several activities – procuring a wide range of items to start the operation of a minimum of eight departments.

Vendor managed inventory (VMI): An innovative approach for hotels
Two major challenges faced by hotel purchasing managers are: having to spend most of their time in sourcing the supplier and maintaining the inventory of fast moving, slow moving and non-moving stock at their cost


Under the VMI model, there is better co-ordination of materials. Information and financial flows among suppliers, manufacturers, contractors is also much better, enabling high supply chain efficiency. Superior quality products can be maintained with quick delivery and high customer service at supplier’s cost.

Stock Maintenance

The hotel should offer space or allot the respective stores’ area to a supplier. Replenishment of stock should be done by the supplier as and when required. The stock will be maintained by the hotel storekeeper or it can be given to the in-charge supplier’s representative.

The supplier can visit and check the stock at regular intervals in case he does not appoint his representative to oversee or maintain the stock.

The rates should be fixed by an annual rate contract through a tendering process. The essence of this inventory model is the “payment terms” .

The contract should be carried out as per the payment terms, which in essence means “payment as per the actual consumption”.

Conclusion and Expected Results

No high inventory value will be in the hotel’s book of account. This enables the working capital requirement of the hotel to be reduced. The inventory carrying cost (ICC) is less in this new model compared to the traditional method.

The hotel can compete with other hotels that are not maintaining their stock as per the VMI model as it is able to offer lower rates because the inventory carrying cost is less. New or just started hotels, which do not have a duty-free liquor license, can compensate for the duty paid amount by availing the benefits of the VMI model.

Importantly, the user department expectations are also met in the same way as that of the traditional inventory system or the old system. The hotel has the opportunity to create competition among suppliers to get or win the contract or space for stores in the coming years because most of the hotels’ location are in prime areas or business areas. Hence, getting a space in this location is an advantage for the supplier.

Optimising on time is the biggest risk factor for a hotel. For example, if one room is not occupied for a day, it is a revenue loss for the hotel because of the perishable nature of room occupancy.

By implementing the VMI model, the storekeeper and purchasing team’s work and time is reduced to 50 per cent. In case of pre-opening hotels, the saved time can be effectively used in recruiting the team, preparation of policies, fixing standard operation procedures, and setting up of the department, which bring great benefi ts and value additions for a hotel.

We must also note that the stock we require will be with us always in this model. The VMI model can match the demand with supply with an expected accuracy of 98 per cent. In this model, the pull supply chain is in place rather than push supply chain.

Then, there is the benefit of system level optimization rather than local optimization. Local optimization is optimizing only one process instead of the entire system. System level optimization means the entire system gets changed and impacted. A hotel or supplier may not like to maintain more items than necessary as it blocks the money, which gets allocated to unwanted items. Under the VMI model, only the items that are required will be there in the stores, This way, the space is saved and hygience is also maintained.

Slow-moving and non-moving items will not be there, since only the required items are maintained in VMI. The risk percentage for a supplier is higher in this model than it is in the traditional inventory model even as the hotel’s risk is reduced.