What Is Vendor Managed Inventory? VMI vs Consignment Inventory, Explained
Published · 7 min read
Vendor managed inventory (VMI) is an arrangement where the supplier, not the buyer, keeps an eye on the buyer's stock and decides when to send more. The buyer shares what's on hand and what's selling, both sides agree on a minimum and a maximum for each product, and the vendor refills the shelf to stay between them. This guide explains how VMI works, how it differs from consignment inventory, what each side gains and gives up, and what you need to keep track of whichever one you run.
What is vendor managed inventory?
In a normal arrangement, you watch your own stock, notice something is running low and send your supplier an order. With vendor managed inventory, that job moves to the supplier. You give them a regular view of your stock, and they decide what to ship and when.
A VMI agreement usually covers:
- Which products are included, often a supplier's whole range on your shelves.
- Minimum and maximum levels for each one. The vendor promises to keep you above the minimum without going over the maximum.
- How stock data reaches the vendor. Larger companies send it automatically, through EDI or a vendor portal. Smaller ones send a count by email or spreadsheet, or let the vendor's rep count the shelf on a visit.
- When you pay. In classic VMI you own the stock once it's delivered and pay on the usual terms. That's the main difference from consignment.
Supermarkets and big retailers made VMI common, but it shows up anywhere a supplier knows its products better than the buyer: a fastener supplier keeping a factory's bins full, a distributor topping up a hospital's supply room, a snack company restocking a shop's display.
Vendor managed inventory vs consignment inventory
The two get mixed up because in both, the vendor stays close to the stock. The difference is who owns it.
| Vendor managed inventory | Consignment inventory | |
|---|---|---|
| Who owns the stock on your shelf | You, once it's delivered | The vendor, until it sells or you use it |
| When you pay | On delivery, on normal terms | Only for what sold or was used, usually monthly |
| Who decides what to restock | The vendor | Usually the vendor, sometimes you |
| What's at risk for you | Stock that doesn't sell | Very little: unsold goods go back |
| What you owe the vendor | Your stock levels and sales | An honest count of what's left, and payment for the rest |
Consignment inventory is common in small retail: a gift shop sells a local potter's mugs, a bike shop carries a brand's helmets on consignment, a gallery hangs an artist's prints. The shop doesn't pay up front. At the end of the month it counts what's left, pays for what sold and hands back what the vendor wants back.
The two can also be combined: consigned stock that the vendor also replenishes. And there's co-managed inventory, where buyer and supplier decide together, and supplier managed inventory, which most people use as another name for VMI.
Pros and cons of VMI
For the buyer:
- Fewer stockouts, because someone whose job it is watches the levels.
- Less time spent counting, ordering and chasing deliveries.
- Often less stock on hand, because the vendor delivers smaller amounts more often.
- But you depend on the vendor's judgement, you share sales data with them, and a vendor can quietly push more of its own products onto your shelves.
For the vendor:
- Steadier orders it can plan production around, and a closer tie to the customer.
- But it takes on the work of watching other people's stock, and it only works if the counts it gets are right.
That last point is where most VMI and consignment arrangements go wrong on a small scale. Nobody needs a vendor portal to run one, but both sides need to trust the count.
What to track for vendor stock
Whether you run VMI or consignment, the records are the same:
- What belongs to the arrangement. Keep a vendor's stock apart from your own, on its own shelf or in its own section of the list, even when it's the same kind of product.
- Where each product is. The stockroom shelf, the shop floor, the back of the van.
- How many there are, product by product, with the vendor's SKU or the barcode on the packaging.
- The agreed minimum, so you know when the vendor is late with a refill.
- A count you both agree on, at the end of every period, with the difference to what you expected.
- What changed and when, so a missing item can be traced: sold, moved or never delivered.
How to keep consignment stock in Hoardo
Hoardo isn't a VMI system. It doesn't run a replenishment program, has no vendor portal and doesn't create purchase orders or reorder anything for you. What it does well is the part both sides depend on: knowing exactly what stock is there, where it is and how many.
- Give the vendor's stock its own room or shelf. A room called "Consignment: Clay & Co", or a numbered shelf in your stockroom, keeps it apart from what you own.
- Add each product with its quantity. Type it, scan its barcode or add the vendor's SKU. A Supplier property on each product says whose it is.
- Set a low-stock alert at the agreed minimum. Tap "Notify me?" beside the quantity, and Hoardo emails you when it gets there. That's your cue to call the vendor. Hoardo stops there and doesn't order anything.
- Count at the end of the period. Make a stocktake list, count each product with + and −, a typed number or a scan, and see what matches, what's short and what's over.
- Send the vendor the numbers. Export the room or the stocktake list as a CSV and attach it to your settlement email.
When something sells, change its quantity. History keeps every change with who made it and when, so at the end of the month you can see how the count got from 12 mugs to 9.
If the vendor's rep counts the shelf on a visit, invite them to that room and let them only look, so they see the same numbers you do without changing anything. Everyone signs in with an email code, Google or Microsoft.
When you need real VMI software
If a vendor needs to see your stock levels automatically, receive orders by EDI, or generate purchase orders from your sales, you need a VMI module in an ERP or a supplier's own portal. Hoardo doesn't connect to those. For the many small shops, workshops and offices where the arrangement is a shelf, a count and a monthly email, a shared, searchable inventory is usually enough.
Free, every feature included
Hoardo is 100% free, with no paid plan: rooms and shelves, quantities, barcodes, stocktakes, low-stock emails, CSV export and your whole team. It runs in the browser on any phone or computer. For the rest of your stock, see inventory management software and how to run a stock take.
Questions about vendor managed inventory
What is vendor managed inventory in simple terms?
The supplier looks after your stock of its products. You share what's on hand and what's selling, you agree on a minimum and a maximum for each product, and the supplier decides when to send more.
What is the difference between VMI and consignment inventory?
Ownership. With VMI you own the stock once it's delivered and pay on normal terms. With consignment the stock stays the vendor's until it sells or is used, and you pay only for that, usually once a month.
What is an example of vendor managed inventory?
A fastener supplier keeping a factory's bins of screws and bolts between agreed levels, or a snack company restocking a shop's display on each visit. The buyer doesn't place orders; the supplier decides what to bring.
Is supplier managed inventory the same as VMI?
Mostly, yes. Supplier managed inventory is another name for the same arrangement. Co-managed inventory is different: buyer and supplier decide on replenishment together.
Can Hoardo reorder stock from my vendor?
No. Hoardo emails you when a product gets down to the level you set, and you contact the vendor the way you do now. It has no purchase orders, vendor portal or automatic reorders.
How do I track consignment inventory for free?
Give the vendor's stock its own room or shelf in Hoardo, add each product with its quantity and SKU, set low-stock alerts at the agreed minimums and count it on a stocktake list at the end of each month. Export the count as a CSV for the vendor.
Can my vendor see the stock in Hoardo?
Yes, if you invite them to that room and let them only view it. They see the products and counts but can't change them, and they never see your other rooms.