Vendor-managed inventory (VMI)
Reviewed by Dasha ShakovVP Marketing, Proton
Updated
What is vendor-managed inventory (VMI)?
Vendor-managed inventory (VMI) is an arrangement in which a distributor or manufacturer keeps a customer’s stock filled to agreed levels. The supplier decides when to restock and how much, based on usage it measures; when a distributor runs it at a customer’s site, it is sometimes called distributor-managed inventory (DMI).
How it works
The stock can belong to the customer, which is billed as items are replenished, or it can be consignment inventory, owned by the distributor until used. Typical setups are bins on a plant floor that a technician scans and refills on a schedule, and industrial vending machines that record each item taken. Many programs bill against a blanket purchase order or releases rather than a new PO for each refill.
Arrangements in which supplier and customer plan the stock levels together go by names such as co-managed inventory (CMI) or jointly managed inventory (JMI).
Vendor-managed inventory (VMI) example
Every Monday a VMI technician scans each bin at a plant and refills anything below its minimum, and the refills are billed against the customer’s annual blanket PO.
Related terms
- Consignment inventoryConsignment inventory is stock that sits at the customer’s site but belongs to the supplier until used, so the customer pays only for what it consumes.
- Integrated supplyIntegrated supply is an arrangement in which a distributor takes over most or all of a customer’s purchasing, stocking and storeroom work for a category.
- Min/maxMin/max is a simple replenishment method in which each item has a minimum and a maximum stock level that trigger and size each new order.
- Blanket purchase orderA blanket purchase order is a long-term order in which a customer commits to buy a set quantity or value of items over a period at agreed prices.
