The Procurement Glossary » Vendor-Managed Inventory (VMI)
Vendor-Managed Inventory (VMI)
Suppliers & Vendors
Also known as: VMI
Definition
An arrangement where the supplier monitors and replenishes the buyer's stock of its items, taking responsibility for availability.
Explanation
Under VMI the supplier uses consumption or stock data to decide when and how much to deliver, reducing the buyer's planning effort and stockouts. It deepens the relationship and aligns incentives around availability.
Example
Under VMI, the supplier tops up the buyer's fastener bins automatically, keeping them above the reorder point.
Related terms
- Consignment Stock — Inventory held at the buyer's site but owned by the supplier until it is consumed, when the buyer pays for it.
- Replenishment — The process of restocking inventory to maintain target levels as items are consumed.
- Reorder Point (ROP) — The inventory level at which a replenishment order should be placed to avoid running out before it arrives.
- Collaborative Planning, Forecasting & Replenishment (CPFR) — A practice where buyer and supplier share forecasts and plans to synchronise supply with demand.
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Frequently Asked Questions
What is Vendor-Managed Inventory (VMI)?
An arrangement where the supplier monitors and replenishes the buyer's stock of its items, taking responsibility for availability. Under VMI the supplier uses consumption or stock data to decide when and how much to deliver, reducing the buyer's planning effort and stockouts. It deepens the relationship and aligns incentives around availability.
Can you give an example of Vendor-Managed Inventory (VMI)?
Under VMI, the supplier tops up the buyer's fastener bins automatically, keeping them above the reorder point.
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