What is Vendor Managed Inventory (VMI)?

Vendor Managed Inventory (VMI) is a supply chain collaboration model in which the supplier—rather than the buyer—takes responsibility for monitoring inventory levels at the buyer’s location and making replenishment decisions. Under a VMI arrangement, the buyer shares real-time or periodic inventory data with the supplier, who uses that data to determine when and how much product to ship. The buyer still owns the inventory (in most models), but the planning and decision-making burden for replenishment shifts to the supplier. VMI is built on the premise that the supplier, with deeper knowledge of production lead times, capacity constraints, and product availability, is better positioned to manage replenishment timing and quantities than the buyer.

Why It Matters

VMI reduces the administrative burden of inventory management for the buyer while improving supply chain efficiency for both parties. For the buyer, VMI eliminates the need to manually monitor stock levels, calculate reorder quantities, and generate purchase orders for every replenishment cycle. This is particularly valuable for businesses managing thousands of SKUs from dozens of suppliers—the cognitive and operational load of monitoring and reordering each one is substantial. VMI shifts that workload to the party with the deepest product knowledge and the greatest incentive to keep inventory flowing smoothly.

For the supplier, VMI provides direct visibility into the buyer’s consumption patterns, enabling more accurate production planning and demand forecasting. Instead of receiving sporadic, unpredictable purchase orders, the supplier sees a continuous stream of demand data that allows them to smooth production schedules, optimize shipping consolidation, and reduce the bullwhip effect that amplifies demand variability upstream in the supply chain. The result is lower costs for both parties, fewer stockouts for the buyer, and more predictable revenue for the supplier.

How It Works

VMI operates through a structured data-sharing and decision-making framework:

• Data Sharing: The buyer provides the supplier with access to inventory data—current stock levels, sales velocity, demand forecasts, and any planned promotions or events that could affect demand. This data is shared through EDI, API integrations, supplier portals, or inventory management platforms that support external access.
• Replenishment Parameters: Both parties agree on inventory parameters—minimum and maximum stock levels, reorder points, lead times, and service level targets. These parameters define the boundaries within which the supplier makes replenishment decisions. The buyer retains control over the rules while delegating the execution.
• Supplier Decision-Making: The supplier monitors the shared data against the agreed parameters and initiates replenishment shipments when inventory approaches reorder points. The supplier determines order quantities based on sales velocity, upcoming demand signals, production schedules, and transportation optimization.
• Shipment and Receiving: Replenishment shipments are sent with advance shipping notices (ASNs) so the buyer’s warehouse can plan for receiving. Upon receipt, the buyer verifies the shipment and updates inventory records. Some VMI arrangements use consignment models where the supplier retains ownership until the product is sold, further reducing the buyer’s financial risk.
• Performance Monitoring: Both parties track VMI performance metrics—fill rates, stockout frequency, inventory turns, and carrying costs—to evaluate whether the arrangement is meeting its objectives. Regular review meetings ensure alignment and provide opportunities to refine parameters as demand patterns evolve.

How Nventory Helps

Nventory facilitates VMI partnerships by providing the real-time inventory visibility that suppliers need to make informed replenishment decisions. Through API integrations and configurable data-sharing permissions, your suppliers can access the stock level and sales velocity data they need without gaining access to sensitive business information. Automated alerts notify both parties when inventory approaches defined thresholds, and purchase order workflows streamline the documentation of supplier-initiated replenishments. By serving as the shared data platform between you and your VMI suppliers, Nventory makes vendor-managed replenishment reliable, transparent, and measurable.