Vendor Managed Inventory (VMI)

Definition: Vendor Managed Inventory (VMI) is a business model where the buyer of a product provides information to a vendor of that product and the vendor takes full responsibility for maintaining an agreed inventory of the material, usually at the buyer's consumption location. A third party logistics provider can also be involved to make sure that the buyer have the required level of inventory by adjusting the demand and supply gaps. VMI makes it less likely that a business will unintentionally become out of stock of a good and reduces inventory in the supply chain.