What is Vendor Managed Inventory (VMI) ?

Vendor Managed Inventory is a business system where the supplier establishes close communication with its buyer and guarantees to provide an agreed inventory level based on the buyer’s preset demands. The simple definition of vendor managed inventory is that the supplier manages the buyer’s inventory.

In traditional methods, the buyer will make an order for a set of products and the supplier will provide accordingly. However under Vendor Managed Inventory, the customer hardly needs any input for the supplier to start providing them products. Usually there will be some sort of eletronic data interchanged (EDI), with which the supplier can managed its buyer’s inventory automatically. 

The VMI definition can vary depending on what industry we are dealing with, where different amounts of cooperation and inventory management might be needed depending on the products that is being dealt with. One popular industry where Vendor Managed Inventory is used is in retail  where large companies such as Walmart take advantage  of VMI to keep it’s inventory levels low.

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