Originally authored by Timothy Murray, from Murray, Hogue & Lannis for Lexis Practical Guidance® US, and adapted for Lexis+® UK.

This Practice Note discusses the operation, benefits, and challenges of vendor-managed inventory (VMI). VMI, or supplier managed inventory, is a supply chain strategy. A VMI arrangement provides for a streamlined approach to inventory management and product order fulfillment pursuant to which the vendor (or supplier or manufacturer) manages a customer's inventory. The customer outsources to the vendor the responsibility of monitoring and replenishing its inventory levels. See accompanying Precedent: Vendor managed inventory (VMI) agreement.

Under a VMI system, it is the supplier, rather than the customer, that assumes the responsibility of tracking the customer's sales activities and inventory levels to determine when the customer needs additional products to meet the customer's needs. Instead of the supplier waiting to respond to and fill the customer's purchase orders, the supplier receives and/or monitors the customer's sales and inventory data, based on which information the supplier determines the timing and quantities of products needed to replenish the customer's inventory.

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