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APICS Operations Management Body of Knowledge Framework, Third Edition

5.10 Vendor-managed inventory (VMI)

VMI partnerships occur when downstream supply chain customers choose to partner with their suppliers. Agreements are made as to where the inventory is stored (either at the supplier's site or the customer's site) and when the billing for the inventory will take place (either upon shipment to the customer or upon use of the part). Further, the supplier often will take control of managing inventory levels for the customer. In some cases, a customer representative may be located at the supplier's site to help manage the activity (or vice versa, as in a retail store). Potential advantages to the supply chain are that transactions are automated and redundancies in paperwork are reduced.