Vendor-managed inventory (VMI): how it works, consignment options, benefits and risks, and key contractual issues (confidentiality, data sharing, service levels, termination)
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Vendor-managed inventory (VMI)
Originally written by Timothy Murray of Murray, Hogue & Lannis for Lexis Practical Guidance US, and refined for Lexis+ UK, this Practice Note explores how vendor-managed inventory (VMI) works, its advantages, and its pitfalls. VMI—also called supplier managed inventory—is a supply chain approach. It offers a streamlined method for inventory control and product order fulfilment, under which the vendor (supplier or manufacturer) oversees the customer’s stock. The customer delegates to the vendor the tasks of monitoring usage and topping up inventory levels. See the accompanying Precedent: Vendor managed inventory (VMI) agreement.
In a VMI model, the supplier, not the customer, accepts responsibility for tracking the customer’s sales and stock positions to decide when further products are required to satisfy the customer’s needs. Rather than waiting to receive and act on purchase orders, the supplier obtains and/or reviews the customer’s sales and inventory data and, using that information, determines the timing and quantities necessary to replenish the customer’s inventory. In theory, VMI supports cost-efficient product availability and fosters a lean supply chain. In practice, implementation can be challenging. Accordingly, supplier-led replenishment replaces order-driven responses, using current sales and inventory data to set timing and quantities, yet implementation remains challenging...
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Web page updated on 22/05/2026
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