What is the primary function of Vendor-managed Inventory (VMI)?

The primary function of Vendor-managed Inventory (VMI) is for the supplier to maintain material for the buyer. In a VMI system, the supplier takes on the responsibility of managing inventory levels for the buyer's products. This includes forecasting the demand, replenishing inventory, and ensuring that the buyer has the right amount of stock on hand at all times.

This approach can lead to improved efficiency in the supply chain, as it reduces the burden on the buyer to monitor inventory levels and make orders. By having the supplier directly manage inventory, it can also lead to better alignment of supply and demand, minimizing stockouts and excess inventory. Suppliers often have better insights into market trends and can adjust their inventory management practices accordingly.

For example, a retailer may realize it can reduce its inventory holding costs by having its suppliers manage stock levels, so they only need to focus on selling rather than inventory management. This partnership model can enhance collaboration and communication between suppliers and buyers, ultimately strengthening the supply chain.