Vendor Managed Inventory (VMI)
A supply chain arrangement where the supplier takes responsibility for maintaining agreed inventory levels at the buyer's location, using shared demand data to trigger replenishment automatically.
Vendor Managed Inventory (VMI) shifts inventory planning and replenishment responsibility from the buyer to the supplier. The buyer shares point-of-sale data, consumption rates, or stock levels with the supplier, who then decides when and how much to ship to maintain agreed minimum and maximum stock levels.
VMI benefits both parties: buyers reduce stockouts and inventory management overhead, while suppliers gain demand visibility that improves their own production planning and logistics efficiency. The arrangement requires a high degree of trust, data sharing, and clear service level agreements.
Example: A hospital implements VMI with its medical consumables distributor. The distributor monitors stock levels of 200 SKUs across 8 supply rooms via connected cabinets, automatically generating replenishment orders when stock hits reorder points. The hospital reduces stockouts by 90% and frees nursing staff from manual inventory counts.