Vendor Managed Inventory (VMI)
Vendor Managed Inventory (VMI) is a supply-chain arrangement in which the supplier (vendor) takes responsibility for monitoring and replenishing the customer's stock of its products, rather than waiting for the customer to place orders. The customer shares consumption and inventory data, and the vendor decides when and how much to ship to keep stock within agreed minimum and maximum levels.
VMI aligns replenishment with actual demand, typically reducing stockouts and excess inventory and smoothing the vendor's production, while cutting the customer's ordering effort. It depends on trust, data sharing and clear agreements on stock targets and ownership (stock may remain the vendor's until consumed, as in consignment). Common in retail and manufacturing, VMI is a form of collaborative, demand-driven replenishment that can lower total inventory across the chain — but only with reliable data and well-defined rules. It contrasts with traditional buyer-driven ordering.
Traditional ordering leaves both sides guessing — the customer over- or under-orders, the vendor is surprised by demand. VMI hands replenishment to the vendor using shared data, cutting stockouts and excess across the chain and smoothing production. It is a proven demand-driven model, but it lives or dies on data quality and clear rules.
Who places the orders under VMI?
The vendor — it monitors the customer's stock and consumption data and replenishes to agreed levels, rather than the customer ordering.
What does VMI require to work?
Reliable shared consumption and inventory data, trust, and clear agreements on stock targets and ownership.