{"id":8620,"date":"2023-02-15T10:36:00","date_gmt":"2023-02-15T10:36:00","guid":{"rendered":"https:\/\/www.mrpeasy.com\/blog\/?p=8620"},"modified":"2025-10-31T09:41:35","modified_gmt":"2025-10-31T09:41:35","slug":"vendor-managed-inventory-vmi","status":"publish","type":"post","link":"https:\/\/www.mrpeasy.com\/blog\/vendor-managed-inventory-vmi\/","title":{"rendered":"What Is Vendor Managed Inventory (VMI) and How To Use It?"},"content":{"rendered":"\n<p>Vendor Managed Inventory is a practical supply chain management method that can lead to better inventory optimization, reduced costs, and stronger relationships between companies. But only if it\u2019s done right.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"571\" src=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2021\/10\/vendor-managed-inventory-1024x571.jpg\" alt=\"vendor-managed-inventory\" class=\"wp-image-8623\" srcset=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2021\/10\/vendor-managed-inventory-1024x571.jpg 1024w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2021\/10\/vendor-managed-inventory-300x167.jpg 300w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2021\/10\/vendor-managed-inventory-768x428.jpg 768w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2021\/10\/vendor-managed-inventory.jpg 1502w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<!--more-->\n\n\n\n<p><em>You can also listen to this article: <\/em><\/p>\n\n\n\n<figure><iframe loading=\"lazy\" height=\"150\" width=\"100%\" src=\"https:\/\/www.podbean.com\/player-v2\/?i=unxr4-11299c8-pb&amp;from=pb6admin&amp;share=1&amp;download=1&amp;rtl=0&amp;fonts=Arial&amp;skin=1&amp;font-color=&amp;btn-skin=3\"><\/iframe><\/figure>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_80 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #343333;color:#343333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #343333;color:#343333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.mrpeasy.com\/blog\/vendor-managed-inventory-vmi\/#What_is_Vendor_Managed_Inventory\" >What is Vendor Managed Inventory?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.mrpeasy.com\/blog\/vendor-managed-inventory-vmi\/#Benefits_of_Vendor_Managed_Inventory\" >Benefits of Vendor Managed Inventory<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.mrpeasy.com\/blog\/vendor-managed-inventory-vmi\/#Drawbacks_of_Vendor_Managed_Inventory\" >Drawbacks of Vendor Managed Inventory<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.mrpeasy.com\/blog\/vendor-managed-inventory-vmi\/#How_to_implement_Vendor_Managed_Inventory\" >How to implement Vendor Managed Inventory?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.mrpeasy.com\/blog\/vendor-managed-inventory-vmi\/#Key_takeaways\" >Key takeaways<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.mrpeasy.com\/blog\/vendor-managed-inventory-vmi\/#Frequently_Asked_Questions\" >Frequently Asked Questions<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_Vendor_Managed_Inventory\"><\/span>What is Vendor Managed Inventory?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Vendor managed inventory (VMI) is a supply chain management method in which a supplier agrees to keep the buyer\u2019s inventory optimized on their behalf. The buyer \u2013 usually a distributor or retailer, shares their inventory data with the supplier \u2013 usually a manufacturer, who decides the order size, replenishment period, etc.<\/p>\n\n\n\n<p>In other words, the vendor is given extra responsibility to ensure that sufficient quantities of stock are consistently available at the buyer\u2019s facility. VMI is also known as continuous replenishment or supplier-managed inventory.<\/p>\n\n\n\n<p>In vendor managed inventory, ownership of the stock is usually transferred as soon as the goods are delivered and paid for. Any holding costs or overheads are still the buyer\u2019s responsibility. This is contrasted with consignment agreements wherein the supplier remains the stock\u2019s owner until it is sold to the end client.<\/p>\n\n\n\n<p>In traditional&nbsp;<a target=\"_blank\" href=\"https:\/\/www.mrpeasy.com\/inventory-management\/\" rel=\"noreferrer noopener\">inventory management<\/a>, every company needs to keep its own stock and purchases optimized. Depending on the market, industry, or supply chain peculiarities, this mostly takes a lot of planning and effort. Vendor managed inventory can be an appealing alternative, provided there are willing suppliers available.<\/p>\n\n\n\n<p>There is one big if. VMI demands a large degree of collaboration between the buyer and the supplier. Therefore, a good level of trust needs to be established before deciding to operate in this fashion.<\/p>\n\n\n\n<p><em>Read more about <\/em><a href=\"https:\/\/www.mrpeasy.com\/blog\/consignment-inventory\/\" target=\"_blank\" rel=\"noreferrer noopener\"><em>consignment inventory<\/em><\/a><em>.<\/em><\/p>\n\n\n<div class=\"banner-v2\">\n    <p class=\"banner-v2__desc\">Implement vendor-managed inventory with MRPeasy<\/p>\n    <a class=\"banner-v2__link\" href=\"https:\/\/www.mrpeasy.com\/sign-up\/\" target=\"_blank\" data-ga-event=\"blog_signup_banner_blue\">Try for free<\/a>\n<\/div>\t\t<style>.banner-v2 {\n    float: right;\n    display: flex;\n    flex-direction: column;\n    justify-content: center;\n    align-items: center;\n    padding: 40px 32px;\n    gap: 16px;\n    width: 356px;\n    height: 205px;\n    background: linear-gradient(199.68deg, #6084E5 13.17%, #5FA7DD 82.1%);\n    border-radius: 4px;\n    margin-left: 12px;\n    margin-bottom: 12px;\n    margin-top: 15px;\n}\n\n@media (max-width: 767.98px) {\n    .banner-v2 {\n         width: 100%;\n         height: 173px;\n         margin-bottom: 0;\n         margin-left: 0;\n    }\n}\n\n.single__content p.banner-v2__desc {\n    margin: 0 !important;\n}\n\np.banner-v2__desc {\n    width: 292px;\n    font-style: normal;\n    font-weight: 700;\n    font-size: 22px;\n    line-height: 29px !important;\n    text-align: center;\n    color: #FFFFFF;\n    margin: 0 !important;\n    order: 0 !important;\n}\n\n.single__content a.banner-v2__link {\n    color: #FFFFFF !important;\n}\n\n.single__content a.banner-v2__link:hover {\n    color: #003557 !important;\n}\n\na.banner-v2__link {\n    display: flex;\n    justify-content: center;\n    align-items: center;\n    width: 181px;\n    height: 51px;\n    padding: 18px 0;\n    border-radius: 4px;\n    background: #003557;\n    font-weight: 700;\n    font-size: 16px;\n    color: #FFFFFF !important;\n    text-decoration: none !important;\n    order: 1 !important;\n}\n\n.banner-v2__link:hover {\n    background: white;\n    color: #003557 !important;\n}<\/style>\n\t\t\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Benefits_of_Vendor_Managed_Inventory\"><\/span>Benefits of Vendor Managed Inventory<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>VMI brings plenty of potential advantages both for the buying company and for the suppliers. Let\u2019s take a closer look at the main ones.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Benefits for the buyer<\/h3>\n\n\n\n<h4 class=\"wp-block-heading\">1. Easier management of purchases and inventory<\/h4>\n\n\n\n<p>Signing a VMI agreement with a supplier means the buyer needs to spend much less time on&nbsp;demand forecasting, purchasing, and inventory optimization. Big parts (though not all) of these tasks are now left to the supplier, including avoiding overstocks and <a href=\"https:\/\/www.mrpeasy.com\/blog\/stockout\/\" target=\"_blank\" rel=\"noreferrer noopener\">stockouts<\/a>.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">2. Reduced stock levels and overheads<\/h4>\n\n\n\n<p>Because inventory levels are monitored by the supplier, safety stock levels can be decreased or eliminated entirely. When a&nbsp;<a href=\"https:\/\/www.mrpeasy.com\/blog\/what-is-reorder-point-and-reorder-point-formula\/\" target=\"_blank\" rel=\"noreferrer noopener\">reorder point<\/a>&nbsp;is reached, the stock will be replenished automatically by the supplier. This also means less standing inventory and corresponding overheads, and less <a href=\"https:\/\/www.mrpeasy.com\/blog\/inventory-shrinkage\/\" target=\"_blank\" rel=\"noreferrer noopener\">inventory shrinkage<\/a> from damaged or expired goods.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">3. Reduced costs<\/h4>\n\n\n\n<p>Although having a vendor manage parts of your inventory is not free, the extra fee decisively offsets the combined time and funds you would otherwise need to spend on analyzing sales data and forecasting, optimization, and <a href=\"https:\/\/www.mrpeasy.com\/blog\/purchase-order-management\/\" target=\"_blank\" rel=\"noreferrer noopener\">purchase order management<\/a>. This can be a great avenue for diverting resources into other areas of the business.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">4. Better communication with the supplier<\/h4>\n\n\n\n<p>Since inventory data is shared in real-time, the supplier will be instantly informed in case of a sudden demand spike. Conversely, when a disruption occurs on the supplier\u2019s side and they are not temporarily incapable of restocking the customer\u2019s inventory, they can notify the client much sooner.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Benefits for the supplier<\/h3>\n\n\n\n<h4 class=\"wp-block-heading\">1. Stronger customer relationships<\/h4>\n\n\n\n<p>A VMI partnership represents a tailor-made service on top of the supplied goods. It builds confidence in its clientele and helps to increase the vendor\u2019s reputation as a trusted supplier. This gives VMI vendors a competitive edge over regular suppliers and means more reliable and assured sales over longer periods.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">2. Easier forecasting<\/h4>\n\n\n\n<p>Having a comprehensive overview of the buyer\u2019s stock requirements allows for creating highly accurate <a href=\"https:\/\/www.mrpeasy.com\/blog\/demand-forecasting\/\" target=\"_blank\" rel=\"noreferrer noopener\">forecasts<\/a> and developing a seamless delivery process. Not only does this shorten delivery lead times, but better communication also means that the supplier is up-to-date on market shifts which helps retain flexibility in case of sudden demand fluctuations.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">3. Optimized inventory<\/h4>\n\n\n\n<p>Not only the buyer\u2019s <a href=\"https:\/\/www.mrpeasy.com\/blog\/inventory-optimization\/\" target=\"_blank\" rel=\"noreferrer noopener\">inventory is optimized<\/a> in VMI. Knowing the ins and outs of the buyer\u2019s stock requirements means easier inventory planning for the vendor as well. Full visibility of the client\u2019s requirements and demand forecasts naturally helps to make sure the supplier\u2019s inventory and production schedules stay lean.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">4. More reliable sales, fewer carrying costs<\/h4>\n\n\n\n<p>All of the above means that vendors can produce or procure as much as is needed and when it\u2019s needed for their clients. Carrying costs are reduced because there is virtually no need for standing stock, save for a small amount of <a href=\"https:\/\/www.mrpeasy.com\/blog\/safety-stock\/\" target=\"_blank\" rel=\"noreferrer noopener\">safety stock<\/a>. This also increases the vendor\u2019s financial performance as inventory turnover can be greatly improved.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Drawbacks_of_Vendor_Managed_Inventory\"><\/span>Drawbacks of Vendor Managed Inventory<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Before concluding that passing the buck of inventory optimization to a willing supplier can seem like an all-around good idea, there are some caveats that need to be considered on both sides. Let us look at the potential disadvantages of VMI.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Drawbacks for the buyer<\/h3>\n\n\n\n<h4 class=\"wp-block-heading\">1. Relying on another company<\/h4>\n\n\n\n<p>Opting for vendor managed inventory means relinquishing a lot of control to another company. This may entail revising security protocols and doing other adjustments to a company\u2019s functioning. Being unsure of the vendor\u2019s capabilities and having security concerns is never a good basis for fruitful cooperation. Business-sensitive information handed over to a vendor can be difficult to mitigate, should issues arise in the agreement. All that is why trust is key to a successful VMI agreement.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">2. Difficult re-sourcing<\/h4>\n\n\n\n<p>Disruptions may occur with even the best suppliers. It might make sense to keep a list of backup suppliers for at least the most critical goods. Additionally, demand for goods may change drastically in many industries, and the market may necessitate completely rethinking the product offer. In this case, it is crucial that existing VMI agreements are flexible enough to allow for opting out of being supplied stock that is no longer necessary. Buyers may also face the risk of getting stuck to a supplier and having to pass up on more lucrative potential partnerships.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Drawbacks for the supplier<\/h3>\n\n\n\n<h4 class=\"wp-block-heading\">1. More responsibility<\/h4>\n\n\n\n<p>On top of simply supplying goods on time, a VMI partner takes responsibility for the successes and failures of its clients. Being the supplier in a VMI agreement naturally increases the workload of the company as inventory management is one of the most intricate aspects of a business. Managing two or more separate inventories in parallel means a need to invest in extra expertise, electronic data interchange systems or EDIs, and hiring extra managers.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">2. Unfeasible or unprofitable with small orders<\/h4>\n\n\n\n<p>All of the abovementioned extra effort that comes with checking, analyzing, and optimizing the buyer\u2019s inventory also means extra labor costs. Fundamentally, managing a client company\u2019s inventory only pays off if the business they get from them is large enough to turn a profit. Many VMI suppliers will set pricing limits that need to be agreed upon beforehand. A VMI program with very small companies or ones with very volatile demand can be risky for suppliers.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_to_implement_Vendor_Managed_Inventory\"><\/span>How to implement Vendor Managed Inventory?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>If you have weighed the pros and cons of vendor managed inventory and have decided it is a good fit for your company, here are the basic steps for starting a partnership.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Use an online inventory management system<\/h3>\n\n\n\n<p>Vendor managed inventory cannot be effectively managed without online software. Whether it\u2019s a spreadsheet shared between the parties via cloud storage or dedicated <a href=\"https:\/\/www.mrpeasy.com\/vendor-management-software\/\" target=\"_blank\" rel=\"noreferrer noopener\">vendor management software<\/a>, it needs to be online in order to provide the supplier with real-time access to the buyer\u2019s inventory data.<\/p>\n\n\n\n<p>This process is all the easier, the more functionality the selected VMI solution has built-in. Modern cloud-based <a href=\"https:\/\/www.mrpeasy.com\/inventory-management-software\/\" target=\"_blank\" rel=\"noreferrer noopener\">inventory management software<\/a> (IMS) goes further from simple data sharing and can simplify demand forecasting and order management as well. Many providers also include built-in integrations with third-party fulfillment platforms and eCommerce apps like <a href=\"https:\/\/www.mrpeasy.com\/shopify\/\" target=\"_blank\" rel=\"noreferrer noopener\">Shopify<\/a>.<\/p>\n\n\n<div class=\"banner-v1\">\n    <div class=\"banner__text\">\n        <div class=\"banner-v1__title\">Easily avoid stockouts and overstocking<\/div>\n        <div class=\"banner-v1__desc\">MRPeasy integrates inventory, sales, purchases, production, and finances to provide you with an accurate real-time overview of your operations.<\/div>\n        <div><a class=\"banner-v1__link\" href=\"https:\/\/www.mrpeasy.com\/sign-up\/\" target=\"_blank\" data-ga-event=\"blog_signup_banner_white\">Try for free<\/a><\/div>\n    <\/div>\n    <div class=\"banner__img\">\n        <img decoding=\"async\" src=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/themes\/mrpeasy\/assets\/images\/banner.svg\" alt=\"banner\">\n    <\/div>\n<\/div>\n\n\n\n<h3 class=\"wp-block-heading\">Draw up an iron-clad agreement<\/h3>\n\n\n\n<p>In business, trust needs to be backed up with a written agreement. Using a standard supplier agreement is not nearly enough and a&nbsp;VMI-specific agreement&nbsp;needs to be drawn up. The agreement needs to specify the terms regarding inventory locations, inventory ownership, level of data access, delivery triggers, minimum order size, and other aspects of the inventory replenishment process. It should also include practicals like payment info, applicable performative KPIs, etc.<\/p>\n\n\n\n<p>The key is agreeing on a contract that satisfies both parties and cements expectations. Some examples can be found <a href=\"https:\/\/www.lawinsider.com\/clause\/vendor-managed-inventory\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a>.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Provide access to the supplier<\/h3>\n\n\n\n<p>When an agreement has been signed, the supplier has to be given access to the data according to the level of access specified in the contract. This may include software areas such as inventory, sales, production, product returns, goods in transit, backorders, etc.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><a href=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2021\/10\/vendor-managed-ivnentory-mrpeasy.png\" target=\"_blank\" rel=\"noreferrer noopener\"><img loading=\"lazy\" decoding=\"async\" width=\"958\" height=\"482\" src=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2021\/10\/vendor-managed-ivnentory-mrpeasy.png\" alt=\"vendor-managed-ivnentory-mrpeasy\" class=\"wp-image-8625\" srcset=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2021\/10\/vendor-managed-ivnentory-mrpeasy.png 958w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2021\/10\/vendor-managed-ivnentory-mrpeasy-300x151.png 300w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2021\/10\/vendor-managed-ivnentory-mrpeasy-768x386.png 768w\" sizes=\"auto, (max-width: 958px) 100vw, 958px\" \/><\/a><figcaption class=\"wp-element-caption\"><strong>In most cases, vendor managed inventory necessitates implementing an inventory management system and providing the supplier with access to the software.<\/strong><\/figcaption><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\">Evaluate performance<\/h3>\n\n\n\n<p>KPIs related to&nbsp;<a target=\"_blank\" href=\"https:\/\/www.mrpeasy.com\/blog\/supplier-performance-management\/\" rel=\"noreferrer noopener\">supplier performance management<\/a>&nbsp;have to be established in the VMI agreement. During the partnership, these metrics are periodically reviewed in order to evaluate the vendor\u2019s compliance with the agreement. Apart from helping in decision-making when it comes to continuing the partnership, communicating the KPIs to the supplier can also help them refine the replenishment processes.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Key_takeaways\"><\/span>Key takeaways<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Vendor managed inventory is a supply chain management method wherein a supplier is given access to the buyer\u2019s inventory data and becomes responsible for optimizing and replenishing their stock.<\/li>\n\n\n\n<li>The benefits of VMI for the buyer include more efficient inventory and procurement management, reduced stock levels and costs, and better communication with suppliers.<\/li>\n\n\n\n<li>The benefits of VMI for the supplier include stronger customer relationships, easier forecasting, more efficient two-way inventory optimization, and more reliable sales.<\/li>\n\n\n\n<li>The disadvantages of VMI for the buyer include difficulty giving up control over their inventory and the possible complexity of changing vendors.<\/li>\n\n\n\n<li>The drawbacks for the suppliers include increased responsibility, added complexities and costs to the inventory management process, and potential challenges with companies that require smaller orders or have very volatile demand.<\/li>\n\n\n\n<li>A proper vendor managed inventory system almost always implies using inventory management software or an ERP\/MRP system on the buyer\u2019s behalf so the supplier has sufficient access to the inventory data.<\/li>\n\n\n\n<li>Other basic steps towards implementing VMI include negotiating a waterproof contract, evaluating vendor performance, and above all, building trust between the companies.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Frequently_Asked_Questions\"><\/span>Frequently Asked Questions<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1680736212380\"><strong class=\"schema-faq-question\"><strong>What is VMI and how it works?<\/strong><\/strong> <p class=\"schema-faq-answer\">VMI or Vendor Managed Inventory is a supply chain management method in which the supplier (or vendor) is made responsible not only for replenishing the buyer\u2019s inventory but also for keeping the stock levels optimized. VMI works through a mutually agreed upon VMI contract and almost always presupposes that the buyer use inventory management software through which the supplier can access the buyer\u2019s inventory data.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1680736229881\"><strong class=\"schema-faq-question\"><strong>What are the pros and cons of VMI?<\/strong><\/strong> <p class=\"schema-faq-answer\">For the buyer, the pros of vendor managed inventory include more efficient inventory and procurement management, reduced stock levels and costs, and better communication with suppliers. For the supplier, the pros include stronger customer relationships, easier forecasting, more efficient inventory optimization, and more reliable sales. The cons include difficulty in giving up control to another company, the possible complexities arising from having to change vendors, and added complexities and costs to the supplier\u2019s inventory management.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1680736241763\"><strong class=\"schema-faq-question\"><strong>What is a vendor managed inventory example?<\/strong><\/strong> <p class=\"schema-faq-answer\">A prominent example of companies using vendor managed inventory would be supermarket chains like Walmart. As these businesses offer a host of different products, making the suppliers responsible for restocking the warehouses makes a lot of financial sense, especially because the buyer is only interested in keeping stock of goods with actual demand.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1680736250005\"><strong class=\"schema-faq-question\"><strong>Who owns inventory in a VMI system?<\/strong><\/strong> <p class=\"schema-faq-answer\">In VMI agreements, stock ownership is usually managed like in normal supplier relationships, meaning that goods change ownership once they are paid for and delivered. This is contrasted with consignment inventory, wherein the goods are delivered to the consignee\u2019s warehouse or point of sale (POS) while still owned by the consignor and remain the former\u2019s assets until sold to end customers.<\/p> <\/div> <\/div>\n\n\n\n<p><em>Read more about: <\/em><a aria-label=\"Vendor Management - An Essential Guide for SMEs (opens in a new tab)\" href=\"https:\/\/www.mrpeasy.com\/blog\/vendor-management\/\" target=\"_blank\" rel=\"noreferrer noopener\"><em>Vendor Management &#8211; An Essential Guide for SMEs<\/em><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Vendor Managed Inventory is a practical supply chain management method that can lead to better inventory optimization, reduced costs, and stronger relationships between companies. But only if it\u2019s done right.<\/p>\n","protected":false},"author":7,"featured_media":8623,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[94,384],"tags":[50,804,803,401,802,169,801,799,800],"class_list":["post-8620","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-tips","category-supply-chain-management","tag-inventory-management","tag-inventory-management-software","tag-inventory-optimization","tag-supplier-performance-management","tag-supplier-relationships","tag-supply-chain-management","tag-vendor-relationships","tag-vendor-managed-inventory","tag-vmi"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.7 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What Is Vendor Managed Inventory (VMI) and How To Use It? | MRPeasy<\/title>\n<meta name=\"description\" content=\"Vendor-managed inventory (VMI) is a supply chain management method where a supplier is responsible for replenishing the inventory of the buying company.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.mrpeasy.com\/blog\/vendor-managed-inventory-vmi\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What Is Vendor Managed Inventory (VMI) and How To Use It? | MRPeasy\" \/>\n<meta property=\"og:description\" content=\"Vendor-managed inventory (VMI) is a supply chain management method where a supplier is responsible for replenishing the inventory of the buying company.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.mrpeasy.com\/blog\/vendor-managed-inventory-vmi\/\" \/>\n<meta property=\"og:site_name\" content=\"Blog for Manufacturers and Distributors\" \/>\n<meta property=\"article:published_time\" content=\"2023-02-15T10:36:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2025-10-31T09:41:35+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2021\/10\/vendor-managed-inventory.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1502\" \/>\n\t<meta property=\"og:image:height\" content=\"838\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Madis Kuuse\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Madis Kuuse\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"10 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.mrpeasy.com\/blog\/vendor-managed-inventory-vmi\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.mrpeasy.com\/blog\/vendor-managed-inventory-vmi\/\"},\"author\":{\"name\":\"Madis Kuuse\",\"@id\":\"https:\/\/www.mrpeasy.com\/blog\/#\/schema\/person\/e40f89c6de450b1e878b72492dfcce1d\"},\"headline\":\"What Is Vendor Managed Inventory (VMI) and How To Use It?\",\"datePublished\":\"2023-02-15T10:36:00+00:00\",\"dateModified\":\"2025-10-31T09:41:35+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.mrpeasy.com\/blog\/vendor-managed-inventory-vmi\/\"},\"wordCount\":2019,\"commentCount\":0,\"image\":{\"@id\":\"https:\/\/www.mrpeasy.com\/blog\/vendor-managed-inventory-vmi\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2021\/10\/vendor-managed-inventory.jpg\",\"keywords\":[\"inventory management\",\"inventory management software\",\"inventory optimization\",\"supplier performance management\",\"supplier relationships\",\"Supply Chain Management\",\"vendor relationships\",\"vendor-managed inventory\",\"vmi\"],\"articleSection\":[\"Manufacturing Tips\",\"Supply Chain\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/www.mrpeasy.com\/blog\/vendor-managed-inventory-vmi\/#respond\"]}]},{\"@type\":[\"WebPage\",\"FAQPage\"],\"@id\":\"https:\/\/www.mrpeasy.com\/blog\/vendor-managed-inventory-vmi\/\",\"url\":\"https:\/\/www.mrpeasy.com\/blog\/vendor-managed-inventory-vmi\/\",\"name\":\"What Is Vendor Managed Inventory (VMI) and How To Use It? 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