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Last edited 03 Mar 2021
Vendor Managed Inventory VMI
Vendor Managed Inventory (VMI) is a business model in which an organisation sets up an arrangement with a vendor and the vendor not only supplies goods but also manages and optimises the inventory from various distributors.
 Establishing the relationship
This arrangement allows the organisation to delegate responsibilities associated with procurement and supply chain management to a third party service provider. This service may be handled by a vendor that provides parts, equipment and maintenance, repair and operations (MRO) materials. By being relieved of certain activities, a company is able to focus on its core competencies and forward planning activities while asking its service provider to enhance value chain engagement.
A Vendor Managed Inventory (VMI) arrangement is sometimes used by small to medium sized businesses that do not have the in-house expertise to manage supply chain logistics or the space to maintain stock. The arrangement relies on clear communication between the organisation and the vendor in order to ensure proper inventory levels are available.
 Advantages and disadvantages
Vendor Inventory Management is a form of business process outsourcing (BPO). As with many outsourcing arrangements, both the organisation and the service provider are exposed to some degree of risk. The parties become dependent on one another for success and this requires a change in culture, attitude and procedures throughout the supply chain.
- Staff are free to focus on core competency areas.
- Inventory levels can be monitored and managed efficiently.
- Supply chains can be managed in an expert and proactive manner.
- It gives the client the opportunity to learn about inventory management best practices from the vendor.
Customer disadvantages can include:
- Reliance on a relationship that may be vulnerable to external factors.
- Less control over inventory issues.
- Possible security concerns over proprietary information associated with the organisation.
- The potential to lose the advantages of open competition from suppliers.
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