Vendor Managed Inventory (VMI) - Meaning & Definition

Published in Operations and Supply Chain Terms by MBA Skool Team

What is Vendor Managed Inventory (VMI)?

Vendor managed inventory is a system where the supplier has the visibility of customer’s inventory and is responsible for customer’s inventory optimization with optimum level of inventory. Whenever the inventory reaches the threshold level, re supply is done by the vendor through regularly scheduled reviews of the on-site inventory.

Damaged or outdated goods are removed, and the inventory is restocked to predefined levels. The vendor restocks the inventory and invoices the customer for the stocked inventory.

Example :

Inventory is placed by the supplier at the vendor’s premises  in case of low value product which has a very standardized design . These include fasteners , standard electrical equipments.  The simplest example of a vendor managed inventory system is between a manufacturer and distributor. The vendor has access to the sales and inventory levels of the distributor and the vendor places an order against itself if its inventory levels are low however prior implementing VMI  the vendor  controls and monitors its inventory levels against the inventory plan and then confirms the order. It basically transfers control in the hands of the manufacturer.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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