Vendor Managed Inventory (VMI)

What Is VMI?

Vendor Managed Inventory is a business model in which a vendor (manufacturer/supplier) becomes responsible for managing and optimizing the inventory of their clients. By adopting a Vendor Managed Inventory strategy, a client (e.g. retailers) will need to provide their manufacturer or supplier with information about the product that they outsource from them. This gives their vendor full responsibility for managing and maintaining the agreed inventory of those products.

To know why Vendor Managed Inventory is important for your business, here are some of its benefits:

Benefits to Retail Businesses 

Benefit No. 1: Reduce Operational Costs

With Vendor Managed Inventory, you can reduce the overall operational costs of your business. By outsourcing inventory management, you will be able to shed excessive inventory management and storage costs.

Vendor Managed Inventory

Also, by outsourcing inventory management, you will be able to spend fewer company resources on managing purchasing records of your business. This enables you to encounter fewer administrative issues that allow you to focus more on product development and production.

Benefit No. 2: More Accurate Inventory

Vendor Managed Inventory allows all your record and receipts to be electronically saved via cloud-based services. By going digital, all your inventory data will be more accurate. Not only that this eliminates the need for employees to physically perform inventory tasks that are prone to be imprecise, but it also allows your business to minimize paper waste. This allows your business to build a more eco-friendly image that may appeal positively to potential customers.

Benefit No. 3: Better Vendor Partnerships

By implementing a Vendor Managed Inventory strategy in your operations, you can build a better business relationship with your manufacturer or supplier. This benefits both parties as this allows both of your business processes to be linked with each other which can drive more effective solutions. With that strong business relationship with your vendor, they will have a better understanding of your organization’s day-to-day operations. That can result in them providing you with more efficient services at the best possible price. 

Benefit No. 4: Fewer Stock-Outs

With your vendor having a better understanding of your business’ real-time demands, they will be able to immediately schedule smaller deliveries of the items that your business needs right before they run out of stock. This will significantly help your business reduce the risk of stock-outs. With that, you will be able to give your clients a better customer experience by guaranteeing the items they want are always in stock and available for purchase.

Benefit No. 5: Increased Sales

As an effect of reduced stock-outs, your customers can purchase the item that they want once they physically visit your store or go to your e-commerce website. With product availability always constant, not only that your customers can avail the items they want, but this also helps boost the quality of service that can increase the number of returning customers over time.

Takeaways Of VMI

By adopting a Vendor Managed Inventory strategy in your business, your vendor will be the main responsible for maintaining the inventory of the products that you outsourced from them. This gives you an opportunity to focus more on other operational competencies that will help you further develop and nourish your business. 

Takeaway No. 1:

Vendor Managed Inventory brings a lot of benefits to a business, especially for retailers that sell a range of different items to their customers every day. By adapting Vendor Managed Inventory in their business processes, they can reduce inventory costs and have more accurate inventory monitoring systems. It also allows your business to build a better professional relationship with your vendor that can significantly help minimize stock-outs and increased overall sales.


Now that you have an idea about what is Vendor Managed Inventory and how it will benefit a business, you might as well assess how adapting it to your business processes can be advantageous in your day-to-day operations. With the burden of handling inventory management tasks out of your hands, your supplier now will take full responsibility for it and assure that they will fulfill the real-time needs of your business. Not only that these will help in improving your sales, but it also allows you to focus on the other core needs of your business.

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