Supplier-Owned Inventory (SOI)

Tags: Glossary

A variant of vendor-managed inventory is consignment inventory. In this case, the supplier not only manages the inventory but also owns the stock close to or at the customer's location until the point of consumption or usage by the customer.

What is Supplier-Owned Inventory (SOI)?

Supplier-Owned Inventory (SOI)

Supplier-Owned Inventory (SOI) is a concept in logistics that refers to a variant of vendor-managed inventory known as consignment inventory. In this arrangement, the supplier takes on the responsibility of not only managing the inventory but also owning the stock that is located close to or at the customer's location. The supplier retains ownership of the inventory until the point of consumption or usage by the customer.

The primary objective of implementing Supplier-Owned Inventory is to streamline the supply chain and improve overall efficiency. By allowing the supplier to own and manage the inventory, it reduces the burden on the customer to maintain and monitor stock levels. This arrangement enables the customer to focus on their core business activities while relying on the supplier to ensure the availability of necessary inventory.

One of the key benefits of Supplier-Owned Inventory is the reduction in inventory holding costs for the customer. Since the supplier owns the inventory until it is consumed or used, the customer does not need to invest in purchasing and storing excess stock. This helps in minimizing inventory carrying costs, such as warehousing, insurance, and obsolescence.

Furthermore, Supplier-Owned Inventory promotes a closer collaboration between the supplier and the customer. The supplier gains a better understanding of the customer's demand patterns and can proactively manage inventory levels to meet those demands. This leads to improved inventory accuracy, reduced stockouts, and enhanced customer satisfaction.

Another advantage of Supplier-Owned Inventory is the potential for cost savings through economies of scale. Suppliers can leverage their expertise in inventory management and their broader customer base to optimize stock levels and reduce overall costs. By consolidating inventory across multiple customers, suppliers can achieve higher efficiency in transportation, warehousing, and procurement.

However, it is important for both the supplier and the customer to establish clear communication channels and maintain transparency in the Supplier-Owned Inventory arrangement. Accurate demand forecasting, timely replenishment, and effective coordination are crucial to ensure the success of this inventory management strategy.

In conclusion, Supplier-Owned Inventory is a logistics concept that allows the supplier to not only manage but also own the inventory located close to or at the customer's location. This arrangement offers benefits such as reduced inventory holding costs, improved collaboration, and potential cost savings. By entrusting the supplier with inventory ownership, the customer can focus on their core business activities while ensuring the availability of necessary stock.

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