Vendor Managed Inventory (VMI)

When a manufacturer has excess inventory not adding value to the process, the inventory is hurting the company’s balance sheet. Having excess physical inventory on hand increases the need for expensive warehousing space and the risk of obsolescence. Instead of being an investment, inventory value depreciates upon receipt from the supplier. Having the bare minimum on hand to sustain production is the delicate balance of supply chain management.

While there are a few different variations of VMI, they all operate under the same principle: by ordering materials only when they are needed, businesses maximize efficiency, minimize costs, reduce stock outs, and increase profits.