What is meant by vendor-managed inventory (VMI)?

Vendor-managed inventory (VMI) refers to a business model where the supplier is responsible for managing the inventory levels of their products at the retailer's location. This approach allows suppliers to monitor inventory levels in real time, make decisions about restocking, and optimize the supply chain based on actual sales data.

In this arrangement, suppliers can ensure that their products remain in stock, reducing stockouts and excess inventory situations for the retailer. This collaborative strategy often leads to improved efficiency, better inventory turnover, and enhanced relationships between suppliers and retailers. The correct understanding of VMI highlights the significance of supplier involvement in inventory control, which is a fundamental aspect of modern supply chain management.