What is vendor-managed inventory (VMI)?

Vendor-managed inventory (VMI) is a supply chain strategy where suppliers manage inventory levels at the customer's location. In this approach, the supplier takes on the responsibility of monitoring inventory levels and restocking items as needed, based on agreed-upon parameters and sales data. This collaboration helps to improve inventory efficiency, reduce stockouts, and often results in lower overall costs for both the supplier and the customer.

One of the key advantages of VMI is that it allows suppliers to better understand demand patterns and adjust their production and delivery schedules accordingly. This leads to a more seamless supply chain where products are stocked in a timely manner, reducing the burden on the retailer to manage inventory levels actively. By empowering suppliers in this way, both parties can focus on their core competencies while optimizing inventory management.

In contrast, the other options do not accurately capture the essence of VMI. Retailers managing supplier relationships or a strategy for outsourcing production describes different concepts entirely. Additionally, increasing warehouse space is unrelated to the core benefits and functions of VMI, which centers around inventory management rather than physical storage solutions.