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Vendor-managed inventory (VMI) is a supply chain initiative where the supplier takes responsibility for managing and replenishing stock levels at the buyer's location. This collaborative approach allows the supplier to have visibility into the buyer's inventory levels, sales trends, and product usage, enabling them to make informed decisions about when and how much inventory to supply.

By allowing the supplier to oversee inventory levels, VMI can lead to improved efficiency and reduced costs for both parties. The supplier can optimize their production and delivery schedules, while the buyer can benefit from reduced stockouts and potentially lower carrying costs. This arrangement fosters stronger relationships between the supplier and buyer, encouraging collaboration and communication in managing inventory.

In contrast, when stock levels are managed solely by the buyer, it may result in inefficiencies and a lack of responsiveness to demand changes. An independent agency overseeing inventory doesn't fully capitalize on the expertise and insights that the supplier can provide. Additionally, VMI does not limit supplier responsibility but rather enhances it by placing them in a proactive role concerning inventory management.