# Vendor-Managed Inventory ## Definition A supply chain coordination arrangement in which the supplier takes responsibility for maintaining stock levels at the buyer's location, using shared inventory data to trigger automatic replenishment. Payment occurs at point of consumption rather than delivery. The buyer surrenders operational control over replenishment in exchange for reduced administrative burden and improved demand signal quality. ## Source Coordination Mechanisms in Modern Supply Chains, §Vendor-Managed Inventory ## Supply Chain Domain Coordination ## VSM Assignment S2 — VMI is a formal coordination mechanism that assigns the replenishment function to the party best positioned to perform it. It reduces oscillation (the bullwhip) by giving the upstream party direct visibility of consumption rather than batched orders. ## WoN Concept Division of Labour — VMI is an application of Smith's division of labour principle at the inter-firm level. The inventory management function — previously split between buyer (demand tracking) and supplier (order fulfilment) with coordination friction between them — is consolidated with the supplier, who has the information and capability to perform it most efficiently. The functional specialisation reduces transaction costs and improves the quality of the upstream demand signal, mirroring Smith's argument that specialisation improves output quality and reduces waste.