What is "vendor managed inventory" (VMI)?

Vendor managed inventory (VMI) is a supply chain strategy in which the supplier, rather than the retailer or customer, is responsible for managing the inventory levels at the customer’s location. This involves the supplier monitoring the inventory requirements and making decisions about when to replenish stock, thus ensuring that optimal levels are maintained without the customer having to constantly manage it.

By allowing the supplier to oversee inventory, VMI can lead to improved efficiency, reduced stockouts, and overall better alignment between the supplier and the customer’s needs. The supplier takes on the responsibility of ensuring that inventory levels meet demand based on their expertise, often gathering data such as sales trends and forecasting requirements.

In contrast, outsourcing inventory control to third parties would not specifically designate the supplier as responsible for inventory levels, which is crucial to the definition of VMI. Similarly, cross-training employees involves skill development and is not related to inventory management, while a temporary agreement for stock management does not encapsulate the long-term relationship and operational integration that VMI entails.