What is "vendor-managed inventory" (VMI)?

Vendor-managed inventory (VMI) is a collaborative approach to inventory management where the supplier takes responsibility for maintaining the inventory levels at the customer's location. In this strategy, the supplier monitors the customer's inventory through real-time data and analytics, determining when to replenish stock based on the customer's actual demand and consumption patterns. This arrangement allows for more efficient inventory management, reduces stockouts, and helps optimize supply chain performance.

By enabling suppliers to manage inventory, VMI fosters collaboration between the customer and supplier, leading to improved relationships and a reduction in order processing time. It also allows customers to focus on their core business activities, while suppliers can leverage their expertise in inventory management to ensure the right levels of stock are maintained.

In contrast, other options such as customers managing their own stock or reducing supplier involvement do not capture the essence of VMI, which fundamentally relies on the supplier's proactive role in managing inventory on behalf of the customer. Similarly, a location-based inventory strategy and the concept of collaboration in VMI differ in scope and purpose, highlighting the importance of supplier engagement in the inventory management process.