---
title: What Is Vendor Managed Inventory (VMI)? Definition | Aavenir
url: https://aavenir.com/glossary/vendor-managed-inventory/
description: Vendor managed inventory (VMI) is a supply agreement where the supplier takes charge of inventory decisions for stock held at the buyer's or retailer's site.
updated: 2026-11-07
---

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# What is vendor managed inventory?

Vendor managed inventory (VMI) is a supply agreement where the supplier takes charge of inventory decisions for stock held at the buyer's or retailer's site.

## How it works

The buyer shares sales and stock data with the supplier, and the supplier decides when to restock and how much, within agreed limits. Similar arrangements go by names such as supplier assisted replenishment, managed inventory or continuous replenishment.

## Ownership of the stock

In some agreements the stock belongs to the vendor until it is used or sold, even though it sits on the buyer's premises, a form of consignment inventory. In others the buyer owns it on delivery. The contract must say which, because it decides when the buyer is invoiced.

## Benefits and risks

- Fewer stockouts and less excess stock.

- Lower ordering effort for the buyer.

- Better demand insight for the supplier.

- Risk of dependence on one supplier, and of disputes if roles and limits are unclear.

## How Aavenir handles it

[Contractflow](https://aavenir.com/solutions/enterprise-contract-management-software/) holds the agreement that sets stock limits, ownership and service levels, and [Obligationflow](https://aavenir.com/solutions/contract-obligation-management-software/) tracks whether the supplier is meeting them.

## Keep reading

[Inventory management system An inventory management system is the software and process that tracks stock from raw materials to finished goods. Read more](https://aavenir.com/glossary/inventory-management-systems/)[Supply chain visibility Supply chain visibility is the ability to see where orders and goods are as they move from source to destination. Read more](https://aavenir.com/glossary/supply-chain-visibility-scv/)[Blanket purchase order A blanket purchase order covers repeated purchases from one supplier over a period, at agreed prices and terms. Read more](https://aavenir.com/glossary/blanket-purchase-order/)

Frequently asked questions (FAQ)

## Common questions

###

### What should a vendor managed inventory agreement include?

Stock level limits, data sharing, replenishment rules, ownership of the stock and when it passes, invoicing triggers, service levels and what happens when they are missed. [Read about contract obligations](https://aavenir.com/glossary/contract-obligations/).

###

### Who owns the stock in vendor managed inventory?

It depends on the agreement. In a consignment model the vendor owns it until it is used. In other models the buyer owns it on delivery. The contract must state this clearly. [Read about inventory management systems](https://aavenir.com/glossary/inventory-management-systems/).

###

### When does vendor managed inventory work best?

For steady, predictable demand, when the buyer and supplier trust each other and can share data reliably, such as high volume consumables or retail goods. It is harder to make work when demand swings sharply. [See Obligationflow](https://aavenir.com/solutions/contract-obligation-management-software/).

Have a question we have not answered? [Ask the Expert](https://aavenir.com/contact/)

Schedule a demo

## See your contracts run on one record.

- **1****A 30 minute walkthrough**Built around your team, whether that is procurement, legal, IT or finance.

- **2****Your contracts, not ours**Bring a few sample agreements and watch Aavenir AI extract and review them.

- **3****ServiceNow or standalone**We show the deployment that fits the systems you already run.

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